Risk & Compliance

Ford Motor Credit Will Amend Disclosures

According to the SEC, the company failed to adequately explain to its investors that they were purchasing unsecured corporate debt.
Stephen TaubJune 16, 2005

The credit division of Ford Motor Co. has agreed to pay $700,000 to settle a dispute with the Securities and Exchange Commission over the marketing of its “Ford Money Market Account.”

According to the commission, Ford Motor Credit Co. marketed the product as an investment comparable to a traditional money-market account. For example, its sales materials emphasized that the accounts paid a guaranteed interest rate slightly higher than the average money-market rate. In addition, they highlighted features of the investment typically present in checking and money-market accounts offered by banks and mutual funds.

The SEC asserted, however, that many of those marketing materials may have confused investors because the company failed to explain that the Ford Money Market Account was not a bank account or a money-market mutual fund. In fact, its investors were actually purchasing unsecured corporate debt of Ford Motor Credit.

The commission also alleged that the company failed to disclose that investors’ accounts — unlike checking or money-market accounts or money-market mutual funds — were not insured by the Federal Deposit Insurance Corp. or subject to the diversification and investment-quality standards of the Investment Company Act of 1940.

Prior to investing, stated the SEC, “investors ultimately received a prospectus setting forth the important disclosures.” But in essence, the commission maintained, each of the sales materials was a “prospectus” that did not satisfy the informational requirements under certain securities laws.

Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, conceded that “the investors in these securities did not lose any money.” Peter Bresnan, an associate director in the enforcement division, emphasized that the SEC is “not alleging that Ford engaged in fraud,” according to The Wall Street Journal, but that “we want to make sure that investors understand the risks.”

Without admitting or denying the SEC’s findings, the company also agreed to change the name of the program to one that does not include or suggest “money market” and to make clear in all sales and marketing materials that the securities are unsecured debt obligations of Ford Motor Credit.