The Securities and Exchange Commission announced on May 31 the institution of proceedings against 15 broker/dealer firms for engaging in violative practices in the $200 billion plus auction rate securities market.
The order requires the respondents to pay the following penalties based upon their relative market share and conduct: Bear, Stearns & Co., Citigroup Global Markets, Inc., Goldman Sachs & Co., J.P. Morgan Securities, Inc., Lehman Brothers Inc., Merrill Lynch Inc., Morgan Stanley & Co. Inc./Morgan Stanley DW Inc., and RBC Dain Rauscher Inc.–$1.5 million each. A.G. Edwards & Sons, Inc., Morgan Keegan & Company, Inc., Piper Jaffray & Co., SunTrust Capital Markets Inc., and Wachovia Capital Markets, LLC–$125,000 each. Banc of America Securities LLC is required to pay $750,000 rather than $1.5 million based on the quality of its self-monitoring capabilities in the auction rate securities area.
The SEC order found that, between January 2003 and June 2004, each firm engaged in one or more practices that were not adequately disclosed to investors, which constituted violations of the securities laws. The violative conduct included: allowing customers to place open or market orders in auctions; intervening in auctions by bidding for a firm's proprietary account or asking customers to make or change orders in order to prevent failed auctions, to set a "market" rate, or to prevent all-hold auctions; submitting or changing orders, or allowing customers to submit or change orders, after auction deadlines; not requiring certain customers to purchase partially-filled orders even though the orders were supposed to be irrevocable; having an express or tacit understanding to provide certain customers with higher returns than the auction clearing rate; and providing certain customers with information that gave them an advantage over other customers in determining what rate to bid…
