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TD Ameritrade Agrees To Buy Back Auction Rate Securities

TD Ameritrade has become the latest brokerage firm to repurchase auction rate securities (ARS) from retail investors as part of a settlement agreement with state and federal regulators. New York Attorney General Andrew Cuomo announced the deal with Ameritrade yesterday, stating the online brokerage would buy back $456 million of auction rate securities from about 4,000 customers.

The announcement with TD Ameritrade comes on the heels of Cuomo’s plans to sue Charles Schwab for allegedly misrepresenting the safety of auction rate securities to clients.

TD Ameritrade’s settlement, which was jointly made with the New York Attorney General, the Pennsylvania Securities Commission and the Securities and Exchange Commission (SEC), requires the company to repurchase any auction rate securities bought before February 2008 from individual investors, charities and small businesses. 

The company has until March 2010 to return the money to customers, although it could take until late June to fully complete the buybacks. For clients with accounts under $250,000, TD Ameritrade says the buybacks will be done within 75 days.

In addition, TD Ameritrade must reimburse investors who sold their auction rate investments at a discount following the market’s collapse in February.

Thousands of investors across the country initially bought auction rate securities on the basis that the instruments were safe, cash-like investment products. In February 2008, however, the Wall Street firms that once supported the auction market suddenly pulled out, leaving retail and institutional investors holding an illiquid investment.

Over the past year, New York Attorney General Cuomo has spearheaded settlements with more than 20 investment firms and banks to buy back more than $60 billion of auction rate securities from investors. Those institutions include the majority of Wall Street’s biggest firms, including Citigroup, Merrill Lynch, Wachovia, Morgan Stanley and JPMorgan.

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