Compliance June 8, 2009

SEC Finalizes ARS Settlements with Three Banks

The Securities and Exchange Commission (SEC) said it finalized settlements with Bank of America, RBC Capital Markets, and Deutsche Bank over charges that the firms misled investors regarding the liquidity risks associated with auction rate securities (ARS) that they underwrote, marketed, or sold.
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The SEC’s Division of Enforcement previously announced preliminary settlements with Bank of America and RBC on Oct. 8. Today’s finalized settlements provide nearly $6.7 billion to approximately 9,600 customers who invested in ARS before the market for those securities froze in February 2008, according to a news release from the SEC.

State and national regulators have been charging financial institutions for their dealings with ARS (see “Brokers: Being Forced to Buy Back ARS Is Unfair” and “Massachusetts Charges Merrill with Fraud over ARS Sales“). The SEC already announced settlements with Wachovia, (see “Wachovia Settles Auction-Rate Securities Charges“), Citigroup, and Merrill Lynch.

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The SEC complaint said Bank of America, RBC, and Deutsche Bank misrepresented to certain customers that ARS were safe, highly liquid investments that were comparable to money markets. The SEC alleged that in late 2007 and early 2008, the firms knew that the ARS market was deteriorating, causing the firms to purchase additional inventory to prevent failed auctions. At the same time, however, the firms knew that their ability to support auctions by purchasing more ARS had been reduced, as the credit crisis stressed the firms’ balance sheets.

The SEC’s complaints allege that Bank of America, RBC, and Deutsche Bank failed to make their customers aware of these risks. In mid-February 2008, Bank of America, RBC, and Deutsche Bank decided to stop supporting the ARS market, leaving their customers holding billions in illiquid ARS.

The settlements, which are subject to court approval, will restore approximately $4.5 billion in liquidity to Bank of America customers, $800 million in liquidity to RBC customers, and $1.3 billion in liquidity to Deutsche Bank customers, according to the news release.

Without admitting or denying the SEC’s allegations, Bank of America, RBC and Deutsche Bank agreed to be permanently enjoined from violations of the broker/dealer fraud provisions and to comply with a number of undertakings.

The SEC said its investigation of the auction rate securities market continues.


Deals & People June 8, 2009

Invesco Expands Distribution Reach with Managing Director Post

Invesco announced that Thomas J. Hughes has joined its Institutional Sales and Client Service team as managing director.
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According to an announcement, Hughes will be responsible for marketing Invesco’s investment strategies primarily to insurance companies, corporations, endowments, and foundations. He joins from Morgan Stanley Investment Management, where he was managing director, head of the financial institutions channel. He began his career as a fixed-income analyst with Northern Trust and later worked in corporate treasury for Continental Illinois National Bank, including over five years of overseas assignments. Previously he was managing director at BankBoston.

Hughes is based in Boston and reports to Ben Utt.

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“We are thrilled to have T.J. Hughes, a recognized leader with years of proven experience, join our Sales & Service team,” said Jack Markwalter, head of U.S. Institutional Sales, Client Service & Consultant Relations, in the release. “T.J. has the ideal skill set and personal attributes to further accelerate our strategy of strengthening our distribution efforts to institutional investors.’

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