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DISB Finalizes Settlement Agreement with JP Morgan Chase & Co.

Wednesday, June 29, 2011
The agreement settles allegations that the firm’s securities dealers misled investors about the safety of the ARS market.

(Washington, DC) — Commissioner William P. White of the DC Department of Insurance, Securities and Banking (DISB) recently signed a final Consent Order requiring JP Morgan Chase & Co. 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.

“JP Morgan Chase is responsible for selling auction rate securities to District of Columbia investors without full disclosure of the risks involved,” said Commissioner White, who signed the Consent Order June 16, 2011. “This action is being taken to make it clear that financial-services companies will be held accountable for activities 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.

“DISB has been seeking much needed relief and liquidity for investors stuck with auction rate securities,” the Commissioner added. “I am pleased that JP Morgan Chase has agreed to repurchase clients’ positions, and I expect other firms that sold these securities in the District of Columbia to do the same.”

The order also requires JP Morgan Chase to pay a $66,867.51 fine to the District of Columbia. The fine amount represents the District’s pro-rata share of a $25,000,000 settlement negotiated by a multistate task force of state regulators formed by the North American Securities Administrators Association. In early 2008, state offices began receiving complaints about ARS from investors throughout the country. During the investigation, regulators discovered that JP Morgan Chase’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 JP Morgan Chase. DISB has entered into settlements with six other Wall Street firms, which involved sales of ARS totaling $734,034,368. Those settlements have resulted in the payment to the District of $3,066,480.31 in fines. DISB is actively negotiating similar settlements with other firms regarding ARS sold in the District of Columbia.