| 30 March 2010

When TD Ameritrade (AMTD) originally settled the SEC in the case of Auction-Rate Securities in July 2009, early reports suggested the firm would pay back as much as $456 million to investors.

The company announced late yesterday that the actual repurchase amount will be closer to $300 million. This amount is based on the requests the company received from customers, as outlined in a document filed with the SEC.

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.

As part of the settlement, TD Ameritrade was told to make all investors in ARS whole. Any individual or business with $10 million or less in assets could sell their ARS back to TD Ameritrade at par. Anyone whole sold the securities could also recoup losses from the firm.

The SEC settled similar cases with Citgroup, Wachovia, Bank of America, RBC Capital Markets and Deutsche Bank. But this settlement hit 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.

While more than 11 firms have paid back over $500 million to investors, the Charles Schwab Corporation (SCHW) has said it will fight the SEC on the the issue. The company claims that the meltdown of the ARS market was primarily the responsibility of the underwriters, not of the brokers.

New York Attroney General Andrew Cuomo filed a lawsuit against Schwab in August.