First Southwest Co. will pay a $150,000 fine and honor a cease and desist order to settle Securities and Exchange Commission charges that it interfered with the auction-rate securities market without disclosing its positions from January 2003 to June 2004. The Texas broker-dealer is not denying or admitting the administrative charges by agreeing to settle.
According to the SEC, First Southwest made bids to prevent failed auctions and all-hold auctions. As a result of these interventions, the auction’s clearing rate was affected and investors got a higher or lower rate of return on investments.
The SEC says that First Southwest violated Section 17(a)(2) of the Securities Act of 1933 that does not allow material misstatements and omissions during any securities sale or offer. The Commission also expressed concern that investors may not have known about the credit risks and liquidity associated with First Southwest’s actions.
The SEC says it considered the broker-dealer’s willingness to cooperate and its small portion of the auction-rate securities market when deciding on the penalty. The fact that First Southwest did not bring its actions to the SEC’s notice was also noted.
Since April, state and federal regulators have been investigating whether large investment firms engaged in misconduct related to the auction-rate securities market. Many auctions have recently failed because of the worldwide credit crisis, and investors are complaining that they were told that ARS’s were safe like cash, when they actually are not.
If you have suffered financial losses because of the negligence or misconduct of an investment firm, contact Shepherd Smith and Edwards today.
Related Web Resources:
First Southwest Company Settles Charges Concerning Its Conduct In The Auction Rate Securities Market, SEC.gov, May 27, 2008