Credit Suisse Securities LLC reached an agreement in principle with state securities regulators to buy back at par $550 million of auction-rate securities from retail investors and pay a $15 million fine to the states.
The North American Securities Administrators Association announced the settlement yesterday along with the securities division of the North Carolina Department of the Secretary of State, which took the lead on the investigation of Credit Suisse on behalf of NASAA's 12-state coalition probing broker-dealers over questionable ARS sales practices.
"This settlement is the result of both efficient and effective enforcement work by state securities regulators and a willingness by Credit Suisse to arrive at a solution that addresses the needs of its clients," said Elaine Marshall, the North Carolina secretary of state and securities administrator.
Under the agreement in principle, Credit Suisse will buy back at par by Dec. 11 all ARS from retail investors who bought the securities before Feb. 14, when the auction-rate market collapsed. The firm will also reimburse clients who sold their securities at a discount after the market failed. A spokesman from Credit Suisse declined to comment on how the firm plans to notify ARS holders.
Credit Suisse also will participate in an arbitration process overseen by the Financial Industry Regulatory Authority to resolve claims of consequential damages suffered by individual investors as a result of not being able to access their funds.
Credit Suisse played a small role in underwriting ARS, but came under increasing scrutiny after the Securities and Exchange Commission charged two Credit Suisse brokers with securities fraud. The charges, filed in Manhattan federal court on Sept. 3, allege that Julian T. Tzolov and Eric Butler misled customers into believing that the ARS being purchased were backed by federally guaranteed student loans. The securities that Tzolov and Butler purchased for their customers instead were backed by subprime mortgages, collateralized debt obligations, and other non-student loan collateral, the SEC charged. The case is pending.