WASHINGTON (Dow Jones) -
A Ford Motor Co. unit will pay $700,000 to settle Securities and Exchange Commission charges that it falsely promoted corporate debt as a money market account.
Ford Motor Credit Co. settled without admitting or denying the SEC's claims that it pitched its "Ford Money Market Account" as being comparable to a traditional money-market investment, while paying a higher interest rate.
Ford's (up $0.45 to $10.97, Research) sales materials may have confused investors, the SEC said Tuesday. No investors lost money on the investments, which Ford has sold for more than a decade, but SEC enforcement division director Linda Thomsen said regulators are acting now "before more serious problems arise."
Ford Motor Credit pitched the "Money Market Account" to millions of potential investors, including customers, dealers and employees, according to the SEC. The company included mailers promoting the accounts in pay stubs, invoices and even annual reports, attracting about 115,000 investors between 1999 and 2004. Most are current or former Ford employees or family members.
While calling it a money market account and offering frills such as free checks and online bill payment, Ford Motor Credit's $7.3 billion investment program involved floating rate demand notes, a kind of corporate debt that has grown to a $28 billion market overall, according to the SEC.
The SEC investigated about 10 different corporate debt issuers, including Ford, in an effort to head off potential problems, said John Stark, chief of the SEC's office of Internet enforcement, in Washington. He declined to say whether other firms would be charged with wrongdoing.
"We're glad that there have not been any investor losses and that Ford is undertaking significant reform" of its corporate debt program, said Stark.
Under the settlement with the SEC, Ford agreed it will no longer market its unsecured corporate debt as a money market account and will rewrite its sales materials and prospectus. The SEC faulted the sales materials, saying they didn't tell investors the Ford accounts were not federally insured like a bank money market account, and didn't offer the diversification of a mutual fund money market account. Although regulators said the prospectus, a legal document supplied to investors, accurately described the investment product, they ordered Ford to add a warning that account holders may lose all or part of their investment if Ford Credit goes bankrupt.
Ford Motor Credit Vice President of Public Affairs Brenda Hines said the company is pleased to resolve the matter and avoid the cost and distraction of litigation. Hines said Ford is renaming the accounts "Ford Interest Advantage," reflecting the fact that they typically offer an interest rate at least one- quarter percentage point higher than taxable money funds.
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