New Jersey Attorney General Paula T. Dow Thursday announced that JPMorgan will pay the state $1.1 million and buy back auction-rate securities from New Jersey investors to resolve allegations that the bank failed to disclose the risks involved with the ARS market.
The $1.1 million payment is New Jersey’s pro-rata portion of a settlement agreement negotiated by a multi-state panel of state regulators formed by the North American Securities Administrators Association.
“New Jersey investors, whose ARS investments were frozen as a result of JPMorgan’s role in these auction market failures, will now regain access to their funds under terms of this settlement,” Dow said in a statement. “Our Bureau of Securities continues to work with other state regulators to protect investors and ensure the return of their monies.”
This isn’t the first of such payments to New Jersey. In early April, Dow announced that Bank of America Merrill Lynch would pay the state $4.87 million to end allegations that the bank sold auction-rate securities to New Jersey investors without proper discloser of the risks involved.
The ARS market froze in the first quarter of 2008, leaving investors holding the securities in an illiquid market. Many states have argued that investment firms did not adequately inform investors of the risks associated with the securities.
In addition to the $1.1 million payment, JPMorgan agreed to buy back ARS it sold in New Jersey.
“Under this settlement, individual investors in New Jersey are eligible to have approximately $91.2 million in ARS repurchased,” a Dow press release said.
To date, New Jersey has completed consent orders with six firms to settle their actions involving ARS, generating more than $1 billion in repurchases.
Municipalities will also see some direct relief as JPMorgan will reimburse local governments refinancing fees they paid to get out of the auction-rate market.
“JPMorgan shall refund refinancing fees JPMorgan has received from municipal auction-rate issuers that issued such securities through JPMorgan in the initial primary market between Aug. 1, 2007, and Feb. 12, 2008, and refinanced those securities through JPMorgan after Feb. 12, 2008,” the consent order reads.
The settlement agreement with Bank of America Merrill also included reimbursements to municipalities that refinanced ARS during a set period of time.