Ameritrade settles securities case for $456M

But N.Y. attorney general blasts Schwab for refusing to settle case involving auction-rate securities.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Julianne Pepitone, contributing writer

Are homes affordable where you live?
  • Yes, thanks to the housing bust.
  • Yes, always have been.
  • No, they're still too pricey.

NEW YORK ( -- Brokerage TD Ameritrade agreed Monday to pay $456 million to settle a lawsuit involving the marketing of a debt class that ended up crippling investors.

But New York State Attorney General Andrew Cuomo, who brought the suit, said another firm, Charles Schwab, has refused to settle claims involving the sale of auction-rate securities (ARS) to individuals, charities, non-profits, small businesses and institutions.

Cuomo's office said TD Ameritrade joined 11 underwriting securities firms and rival broker Fidelity Investments in settling his allegation that they "misrepresented auction-rate securities as liquid, short-term investments," according to a statement.

The office said the settlements by 20 firms with his office and other regulators have resulted in more than $61 billion in buybacks of the securities.

As part of the settlement, Omaha, Neb.-based TD Ameritrade (AMTD) said it will repurchase all auction-rate securities it sold before Feb. 13, 2008. TD Ameritrade will buy the securities from retail investors with accounts of $250,000 or less within the next 75 days.

The firm said it will repurchase the remaining securities by March 2010, and will reimburse investors who sold at a loss after the market failed.

The auction-rate securities market involved buying and selling long-term bonds that resembled corporate debt. Hospitals, cities and corporations sold the securities at weekly or monthly auctions, where interest rates were reset each time.

Many investors had treated ARS like cash investments, but the $330 billion market collapsed in early 2008 as the credit crisis took a turn for the worse.

Cuomo's office said it is pushing auction-rate securities brokers and underwriters to repurchase them from investors who were left with steep losses.

Schwab objects: Cuomo's office also announced "imminent legal action" against Charles Schwab (SCHW, Fortune 500) for alleged deceptive selling of auction-rate securities as safe.

"It is disturbing that Charles Schwab, who had been holding itself out as an industry expert, has stonewalled its customers," Cuomo said. "Today's notice should send a signal that if Charles Schwab will not stand by its customers, this office will."

In a statement, Schwab said it did not plan to settle, and that Cuomo presumed the company "somehow knew of a risk that the entire ARS market could seize up at any time, and failed to disclose that risk to its clients, which is preposterous."

Regulators like the Securities and Exchange Commission -- and Cuomo's office itself -- did not know the auction-rate market was going to fail, Schwab said, adding it "could not be expected to foresee and disclose market risks that even regulators and market experts did not foresee." To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.