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DISB Finalizes Settlement Agreement with RBC Capital Markets Corporation

Monday, March 7, 2011

DISB Finalizes Settlement Agreement with RBC Capital Markets Corporation

“DISB is holding RBC accountable for engaging in unethical behavior by selling auction rate securities to District of Columbia investors without full disclosure of the risks involved,” said Acting Commissioner White.

(Washington, DC) — Acting Commissioner William P. White of the DC Department of Insurance, Securities and Banking (DISB) recently signed a final Consent Order requiring RBC Capital Markets Corporation to complete or confirm to DISB its offer to repurchase auction-rate securities (ARS) from District of Columbia clients to settle allegations that the firm’s securities dealers misled investors about the safety of the ARS market.

“DISB is holding RBC accountable for engaging in unethical behavior by selling auction rate securities to District of Columbia investors without full disclosure of the risks involved,” said Acting Commissioner White, who signed the Consent Order Feb. 23, 2011. “This action sends a clear message that the District of Columbia will not tolerate unethical or unlawful behavior by financial-services companies that result in unnecessary financial hardship for any District consumer.”

Although marketed and sold to investors as safe, liquid, and cash-like investments, ARS are actually long-term investments subject to complex auction processes that failed in early 2008, leading to illiquidity for investors.

“From the day these auctions first failed, DISB has been seeking much needed relief and liquidity for investors stuck with auction rate securities,” the Acting Commissioner added. “I am pleased that RBC has agreed to do what’s right by repurchasing clients’ positions, and I expect other firms that sold these securities in the District of Columbia to do the same.”

The order also requires RBC to pay a $38,232.02 fine to the District of Columbia. The fine amount represents the District’s pro-rata share of a $9,800,000 settlement negotiated by a multistate task force of state regulators formed by the North American Securities Administrators Association. Early 2008, state offices began receiving complaints about ARS from investors throughout the country. During the investigation, regulators discovered that RBC’s securities dealers failed to adequately inform customers and train employees on the risks associated with buying ARS.

The Consent Order is the final step in the District’s ARS case against RBC. DISB has entered into settlements with four other Wall Street firms, which involved sales of ARS totaling $690,834,368.  Those settlements have resulted in the payment to the District of $2,902,848.86 in fines.  DISB is actively negotiating similar settlements with other firms regarding ARS sold in the District of Columbia.