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November 12, 10

NEWS / Stifel Nicolaus to Repurchase $5.4 Million in Auction Rate Securities from N.J. Investors

NEWARK – The Office of the Attorney General through its Bureau of Securities has signed a final Consent Order that requires Stifel Nicolaus & Company, Inc., to repurchase auction-rate securities (ARS) from New Jersey clients to settle allegations that the firm’s securities dealers sold ARS without disclosing known risks of the ARS market.

Under the terms of the settlement, Stifel Nicolaus will repurchase $5.4 million in ARS sold to retail investors in New Jersey. Although marketed and sold to investors as safe, liquid, and cash-like investments, the ARS were actually long-term investments subject to a complex auction process that failed in early 2008, revealing illiquidity and lower interest rates than investors were promised.

This is the seventh such settlement that the Bureau has reached with firms that sold Auction Rate Securities to New Jersey investors. More than $1 billion of these assets have been repurchased by the firms, under terms of the settlements.

“Investors, through no fault of their own, suffered because of a lack of disclosure by these firms,” said Thomas R. Calcagni, Acting Director of the Division of Consumer Affairs. “Disclosure of material facts to clients is required by our state laws and we will act, as we’ve done here, when firms fail to comply.”

“The Bureau of Securities continues to seek relief for investors stuck with these unsuitable and illiquid products,” said Marc B. Minor, New Jersey Bureau of Securities Chief. “State securities regulators joined forces to resolve this matter on behalf of New Jersey investors. The states are on the frontlines in protecting investors and their hard-earned savings.”
The order also requires Stifel Nicolaus to pay a $15,381.10 civil penalty to New Jersey. This 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).

During the investigation, regulators discovered that Stifel Nicolaus securities dealers failed to adequately inform customers on the risks associated with buying auction-rate securities.

The investigation into Stifel Nicolaus’ role in the sale 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, 12 states, including New Jersey, formed a task force to investigate whether certain Wall Street firms had systematically misled investors when placing them in auction rate securities.

The Consent Order sets forth the allegations by the BOS and the terms that were agreed to in principle in October, 2008.

BOS Investigating Attorney Peter C. Cole led New Jersey’s efforts in securing this settlement and protecting Garden State investors.




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