The Financial Industry Regulatory Authority Wednesday settled with three more firms over their sale of auction rate securities that subsequently became illiquid, alleging that the products’ risks weren’t adequately disclosed.

The latest settlements are with Northwestern Mutual Investment Services, LLC, of Milwaukee, which was fined US$200,000; City Securities Corp., of Indianapolis, which was fined US$250,000; and Fifth Third Securities, Inc., of Cincinnati, which was fined US$150,000. All three firms also agreed to offer to repurchase ARS that were sold to their customers where the auctions failed.

FINRA’s investigation “found that each firm sold ARS using advertising, marketing materials or communications with its sales force that were not fair and balanced, or that failed to contain adequate disclosure of the risks of ARS, and therefore did not provide a sound basis for investors to evaluate the benefits and risks of purchasing ARS.”

In concluding these settlements, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

To date, FINRA has concluded final settlements with 12 firms, imposing a total of US$3.2 million in fines and guaranteeing the return of more than US$1.3 billion to investors. Investigations continue at a number of additional firms.

“The failure of firms to adequately disclose the risks associated with auction rate securities left customers unprepared for the failure of the auction market last year and the resulting consequences,” said Susan Merrill, FINRA executive vice president and chief of enforcement. “As with our previous ARS settlements, FINRA’s first priority has been to ensure investor access to the money they had invested in ARS. We are gratified that these firms agreed to initiate or complete offers to buy back frozen ARS from their customers.”

IE