A Financial Industry Regulatory Authority arbitration panel has ordered Oppenheimer & Co. to repurchase the $5.98 million in New Jersey Turnpike ARS that it sold Nicole Davi Perry in 2007. The investor reportedly purchased the securities through Oppenheimer Holdings Inc. (OPY).
Perry, who, along with her father, filed her ARS arbitration claim against the financial firm in 2010, accused Oppenheimer of negligence and breach of fiduciary duty. She and her father, Ronald Davi, were reportedly looking for liquidity and safety, but instead ended up placing their funds in the auction-rate securities. They contend that they weren’t given an accurate picture of the risks involved or provided with a thorough explanation of the securities’ true nature.
Oppenheimer disagrees with the panel’s ruling. In addition to buying back Perry’s ARS, the financial firm has to cover her approximately $134,000 in legal fees.
It was just in 2010 that Oppenheimer settled the ARS securities cases filed against it by the states of New York and Massachusetts. The brokerage firm consented to buy back millions of dollars in bonds from customers who found their investments frozen after the ARS market collapsed and they had no way of being able to access their funds.
Oppenheimer is one of a number of brokerage firms that had to repurchase ARS from investors. These financial firms are accused of misrepresenting the risks involved and inaccurately claiming that the securities were “cash-like.” A number of these brokerage firms’ executives allegedly continued to allow investors to buy the bonds even though they already knew that the market stood on the brink of collapse and they were selling off their own ARS.
Auction rate securities are usually corporate bonds, municipal bonds, and preferred stock with long-term maturities. Investors receive interest rates or dividend yields that are reset at each successive auction.
ARS auctions take place at regular intervals—either every 7 days, 14 days, 28 days, or 5 days. The bidder turns in the lowest dividend yield or interest rate he or she is willing to go to purchase and hold the bond during the next auction interval. If the bidder wins at the auction, she/he must buy the bond at par value.
Failed auctions can happen when there are not enough bidding buyers available to acquire the entire ARS block being offered. A failed auction can prevent ARS holders from selling their securities in the auction.
There are many reasons why an auction might fail and why there is risk involved for investors. It is important that investors are notified of these risks before they buy into the securities and that they only they get into ARS if this type of investment is suitable for their financial goals and the realities of their finances.
Panel Says Oppenheimer Must Buy Back $6M In Auction-Rate Securities, Wall Street Journal, January 10, 2012
Oppenheimer settles with Massachusetts, NY, Boston, February 24, 2010
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Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011
Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31, Institutional Investor Securities Blog, August 6 2011
Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011