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Category Archives: TD Ameritrade

Pennsylvania Securities Commission Orders Wachovia to Refund $324.6M to ARS investors

In the wake of the collapse of the auction rate securities market in February 2008, many of the nation’s largest financial institutions quickly agreed to settlements with state securities regulators as a way to resolve charges they misled retail and institutional investors about the liquidity risks of the instruments they underwrote.

The latest state to order a Wall Street institution to buy back auction rate securities from investors is Pennsylvania, which on Aug. 11 ordered Wells Fargo & Co.’s Wachovia unit to buy back $324.6 million of auction rate securities from an estimated 1,300 Pennsylvania retail investors.

Wachovia also will pay a $2.52 million assessment to the state for its role in the auction rate securities market.

In a press release on the ARS agreement with Wachovia, Pennsylvania Securities Commissioner Steven Irwin said the bank “marketed and sold these securities as safe, liquid and cash-like investments when, in fact, they were long-term investments subject to a complex auction process that failed in early 2008, leading to illiquidity and lower interest rates for investors.”  

The Pennsylvania Securities Commission is continuing its investigation of other investment firms and their sales of auction rate securities. In July, the regulator ordered TD Ameritrade to repurchase $26.5 million of auction-rate securities. That same month, Pennsylvania also reached a settlement with Citigroup over ARS sales. That settlement, which was part of a larger deal agreed to with 12 states, required Citigroup to buy back $978.1 million worth of auction rate securities from Pennsylvania investors. In addition, Citigroup paid a $2.31 million fine to the Pennsylvania Securities Commission.

I.R.A. Custodians: Stricter Supervision Needed To Protect Investors

Silence is the voice of complicity. And in the case of Fiserv, the silence is deafening. A former leader in the I.R.A. service industry before selling its business to TD Ameritrade in February 2008, Fiserv is making news for its role as an I.R.A. custodian to hundreds of self-directed individual retirement accounts (I.R.A.s) that lost more than $1 billion of investors’ money to high-profile Ponzi schemes. 

All of the Ponzi scheme victims were steered solely to Fiserv as the account custodian. As for the scams, one included Bernie Madoff’s. Another was orchestrated by Louis J. Pearlman, former manager of the Backstreet Boys and N’Sync. A third Ponzi scheme was conducted by Daniel Heath, who was convicted last year of defrauding hundreds of elderly churchgoers.

All three con artists focused on the self-directed I.R.A., and all three apparently told their victims to only use Fiserv as their I.R.A. service firm. 

That edict would prove costly. More than $1 billion has been erased from I.R.A. accounts that were set up through various units of Fiserv, according to a July 24 story in the New York Times

Now investors are suing not only the masterminds of the Ponzi schemes – i.e. Madoff, Heath and Pearlman – but also companies like Fiserv that acted as custodians for individuals with self-directed I.R.A.s. 

Unlike traditional IRAs that invest in stocks, bonds or mutual funds, self-directed IRAs allow investors to put money into alternative investments. Those investments can range from real estate to hedge funds. The investor then relies on a support firm – the I.R.A. custodian – to make the purchases and perform various administrative functions. 

“From the beginning, [Fiserv] was the only firm that Madoff recommended,” said Peter Moskowitz of Corona, Calif., in the New York Times story. Moskowitz is one of dozens of Madoff victims who said they were directed to a Fiserv unit called Retirement Accounts. 

“Once, when I wanted to change, they told me ‘absolutely not’ – they would only deal with Fiserv,” Moskowitz said.

Last year, Fiserv paid $8.5 million to settle a California class-action lawsuit involving elderly victims who were snared in a long-running Ponzi scheme that made investments through self-directed IRAs administered by Heath. The investors lost about $100 million. A separate lawsuit against Fiserv, brought by about 40 investors in the same scam, is ongoing. Fiserv also faces two lawsuits by Pearlman’s victims in a federal court in Florida, as well as two Colorado lawsuits involving Madoff’s victims.

All of the lawsuits agree that Fiserv did not steer customers into the actual investments. Instead, they argue that Fiserv failed to perform its contractual and fiduciary duties as an I.R.A. custodian and, as a result, failed to protect the accounts from fraud. 

According to the New York Times, Heath’s victims say Fiserv issued inaccurate account statements that concealed repeated defaults on the promissory notes that Heath sold them. In the lawsuit involving Pearlman, documents say the securities were “completely mystifying,” with Fiserv describing them as mutual funds, assets, shares, nonstandard assets and brokerage accounts, all within the same account statements. 

Meanwhile, victims of Madoff are asking how Fiserv, as the custodian of the I.R.A. accounts, could fail to notice that no stocks were ever purchased for those accounts. 

In June, regulators shut down yet another Ponzi scheme, which claimed $30 million in I.R.A. savings. This one was run Edward Stein. As for the I.R.A. custodian who handled the account for Stein? It was none other than Fiserv.

The bottom line: Stricter regulations, supervision and oversight are desperately needed when it comes to monitoring the actions of I.R.A. custodians. Had custodians like Fiserv performed the most basic due diligence – doing record-keeping duties, for example – it would have been very difficult for scam artists like Bernie Madoff to steal investors’ I.R.A. savings. Fiserv’s failure to fulfill its obligations makes it, at the very least, an accomplice in the latest Ponzi schemes that have come to light. 

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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