Firms will buy back $1.8 b in auction-rate securities

WASHINGTON, D.C. --- The Financial Industry Regulatory Authority, or FINRA, announced today agreements in principle with five financial-services firms to repurchase more than $1.8 billion of auction-rate securities.

FINRA, which describes itself as the largest nongovernmental regulator of securities firms doing business in the United States, added that investigations into the sales of auction-rates securities continue at nearly 50 additional firms.

Before today, other financial services firms had agreed to buy back nearly $60 billion in auction-rate securities after regulators concluded that those firms had failed to communicate to their customers the risks that can be associated with such investments.

“FINRA’s primary goal in reaching these agreements was to ensure that investors disadvantaged in failed auctions will be able to access the millions of dollars they invested in auction-rate securities,” Susan L. Merrill, FINRA executive vice president and chief of enforcement, said in a statement prepared for congressional testimony. “We are pleased that these firms have stepped up and agreed to do the right thing for their customers, and we have given them credit for doing so in assessing their fines.”

The five firms that agreed in principle today to settle charges relating to auction-rate securities are SunTrust Investment Services Inc. and SunTrust Robinson Humphrey Inc., both of Atlanta; Comerica Securities Inc. of Detroit; First Southwest Co. of Dallas; and WaMu Investments Inc. of Irvine, Calif., FINRA said.

Referring to auction-rate securities as ARS, FINRA added in a press release: "FINRA’s investigation has found evidence that each firm sold ARS using advertising, marketing materials, or other internal communications with its sales force that were not fair and balanced and therefore did not provide a sound basis for investors to evaluate the benefits and risks of purchasing ARS."

Merrill made the announcement during a hearing of the US House Committee on Financial Services, which is chaired by US Representative Barney Frank (upper right), a Newton Democrat.

Massachusetts Secretary of State William F. Galvin (left) and Massachusetts Attorney General Martha Coakley are also scheduled to appear at the hearing.

Regulators, including Galvin and Coakley, have secured settlements requiring brokerage firms to buy back nearly $60 billion in auction-rate securities from their customers, who have been unable to sell them since February.

The investments are the bonds of nonprofits and student lenders, as well as the debt of certain investment funds. They stopped trading abruptly when all brokerage firms abandoned the market, amid other troubles in the credit markets.

For recent Globe stories about auction-rate securities, please click here.
(By Beth Healy and Chris Reidy, Globe staff. File photo of Barney Frank: Susan Walsh/AP. File photo of William Galvin: Stephan Savoia/AP.)