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09/10/2010

News / JPMorgan Chase & Co. Pays $1.1M to New Jersey Bureau of Securities to Settle Auction Rate Securities Case

NEWARK - The Office of the Attorney General through its Bureau of Securities yesterday signed a final Consent Order that requires JPMorgan Chase & Co. (JPMorgan) to complete or confirm its repurchase of auction-rate securities (ARS) from New Jersey clients to settle allegations that the firm's securities dealers failed to disclose risks of the ARS market.

Although marketed and sold to investors as safe, liquid, and cash-like investments, ARS are actually long-term investments subject to a complex auction process that failed in early 2008, causing illiquidity and lower interest rates than investors were promised.

Under this settlement, individual investors in New Jersey are eligible to have approximately $91,250,000 in ARS repurchased.

“ New Jersey investors, whose ARS investments were frozen as a result of JPMorgan's role in these auction market failures, will now regain access to their funds under terms of this settlement ,” Attorney General Paula T. Dow said. “Our Bureau of Securities continues to work with other state regulators to protect investors and ensure the return of their monies.”

The order also requires JPMorgan to pay a $1,149,028.56 fine to New Jersey . The fine amount represents the state's pro-rata share of a settlement negotiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association (NASAA).

“Our Bureau of Securities worked with other state regulators in a task force that combined and coordinated investigative resources,” said Thomas R. Calcagni, Acting Director of the Division of Consumer Affairs. “ New Jersey will continue to be an active leader in investor protection.”

The Bureau has now entered into Consent Orders with six firms to resolve their conduct in the ARS market. These agreements have generated over $1 billion in repurchases of ARS for New Jersey investors.

“From the first failed ARS, the Bureau of Securities has sought to secure the necessary relief for investors stuck with these unsuitable and illiquid products,” said Marc B. Minor, New Jersey Bureau of Securities chief. “JPMorgan has agreed to do what's right by offering to repurchase its clients' positions, and I fully expect other firms that employed similar practices in marketing and selling these securities in New Jersey to do the same.”

During the investigation, regulators discovered that JPMorgan inappropriately marketed and sold ARS without adequately informing their customers of the increased risks of illiquidity associated with the product. The investigation focused on conduct occurring between the fall of 2007 through the failures in February 2008 .

The investigation into JPMorgan's role in the marketing of auction rate securities is part of a larger state-led effort to address problems in connection with ARS investments. Early in 2008, state offices began receiving complaints from investors throughout the country. As a result, by April 2008, 12 states, including New Jersey , formed a task force to investigate whether the nation's prominent Wall Street firms had systematically misled investors when placing them in auction rate securities.

The consent order announced yesterday concludes New Jersey 's auction rate securities case against JPMorgan as to retail investors.

BOS Investigating Attorney Peter C. Cole led New Jersey 's efforts in securing this settlement with JP Morgan.

http://www.nj.gov/oag/newsreleases10/pr20100909b.html

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