| 20 July 2009

The auction rate securities market collapsed in February 2008 and left many investors wondering what just happened. They had good reason to scratch their heads. Individual investors, charities, and small business were sold the opportunity to play in a market usually reserved for larger players. But rarely were they made aware of the risks.

Now, thanks to the SEC and the NY Attorney General, TD Ameritrade must make all investors in ARS whole. Any individual or business with $10 million or less in assets can sell their ARS back to TD Ameritrade at par. Anyone whole sold the securities can recoup losses from TD. You can even file a claim for additional damages through a special arbitration proceeding.

The SEC has settled similar cases with Citgroup, Wachovia, Bank of America, RBC Capital Markets and Deutsche Bank. But this latest announcement hits home with the small online investor. TD Ameritrade representatives often sold their customers ARS as an alternative to CDs or money markets, when in fact they were much different and much more susceptible to losses.

"TD Ameritrade improperly marketed ARS to retail customers as short-term investments without telling them about the special risks of the ARS market," said Donald M. Hoerl, Regional Director of the SEC's Denver Regional Office. "This settlement provides hundreds of millions of dollars to thousands of TD Ameritrade customers who hold ARS that are now illiquid."

Update: according to Bloomberg TD Ameritrade will end up paying back approximately $456 million to investors. This is not a fine, according to the report, but simply restitution to investors. The previous 11 banks that settled paid over $570 million in fines.