| 03 September 2009

The Financial Industry Regulatory Authority (FINRA) has announced that three additional firms in order to settle charges related to the sale of Auction Rate Securities (ARS). The firms include Northwestern Mutual Investment Services of Milwaukee, which was fined $200,000, City Securities Corporation of Indianapolis, which was fined $250,000 and Fifth Third Securities (FITB) of Cincinnati, which was fined $150,000.

All three said they will repurchase ARS sold to their customers where the auctions for the ARS had failed which amounts to approximately $103 million for Northwestern Mutual, about $13.1 million for City Securities and approximately $11.9 million for Fifth Third Securities. As we reported previously, TD Ameritrade agreed to repay about $456 million to its clients. Schwab, on the other hand, has decided to fight the charges.

"The failure of firms to adequately disclose the risks associated with auction rate securities left customers unprepared for the failure of the auction market last year and the resulting consequences," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "As with our previous ARS settlements, FINRA’s first priority has been to ensure investor access to the money they had invested in ARS. We are gratified that these firms agreed to initiate or complete offers to buy back frozen ARS from their customers."

While all three firms neither admitted nor denied the allegations FINRA did find that each of them used deceptive advertising practices to sell ARS products. FINRA found that the marketing was not fair and balanced and that the firms failed to disclose to clients the possibility that the markets could collapse.