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U.S. unit agrees with North Carolina on $550m repurchase, and will pay $15m in civil penalties.
Stephen Taub, CFO.com | US
September 16, 2008
Credit Suisse Securities (USA) LLC agreed to pay civil penalties of $15 million, and to buy auction rate securities from individual investors, as part of a settlement announced by the North American Securities Administrators Association (NASAA).
Under the settlement with North Carolina state securities regulators, Credit Suisse agreed to buy back about $550 million in ARS, according to Reuters. The investors include all individuals; legal entities forming an investment vehicle for family members, charities, and non-profits; and small- to medium-sized businesses with up to $10 million in accounts with Credit Suisse.
The settlement is the result of an investigation of the firm led by the Securities Division of the North Carolina Department of the Secretary of State into allegations that the firm misled clients by falsely assuring them that ARS securities were as safe and liquid as cash. "Today’s settlement is another step in the road to recovery for thousands of Main Street investors who have been trapped in the auction rate securities meltdown. State securities regulators will continue to work toward ensuring that investors harmed by auction rate securities are provided relief," said NASAA President Karen Tyler, who is also the North Dakota securities commissioner.
New York State Attorney General Andrew Cuomo assisted in reaching the settlement. A number of large investment firms have agreed to reimburse ARS customers under settlements with Cuomo and other state regulators. They include Fidelity Investments, which recently became the first downstream retail broker to settle and agree to buy back Auction Rate Securities from its customers. In addition, at least eight investment banks have settled, including Citigroup, UBS, JP Morgan, Morgan Stanley, Wachovia, Merrill Lynch, Goldman Sachs, and Deutsche Bank.
Earlier this month, regulators charged two former Credit Suisse brokers with conspiracy and securities fraud in a $1 billion scheme involving the purchase of unauthorized auction-rate securities for international corporate customers.
The Securities and Exchange Commission alleged that Julian Tzolov and Eric Butler, both vice presidents and directors at Credit Suisse until September 2007, fraudulently bought auction-rate securities for customers while telling them that the assets were backed by federally guaranteed student loans — a low-risk cash equivalent. Instead, according to the SEC, Tzolov and Butler bought risky versions of ARS that were backed by collateralized subprime mortgages, collateralized debt obligations, mobile home contracts, and loans that were not government-backed. Attorneys for Tzolov and Butler have not responded to CFO.com requests for comment.
Tzolov and Butler bilked mainly foreign corporate customers with short-term cash management accounts, the SEC said. The scheme involved customers from places such as Canada, Panama, and Switzerland.