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California settles misrepresentation claim with E-Trade

January 13, 2012|By Marc Lifsher
  • E-Trade's office in Palo Alto
E-Trade's office in Palo Alto (Paul Sakuma / Associated…)

California regulators have announced a final settlement in a dispute with E-Trade Securities that would allow holders of certain investments to get refunds of up to $20 million.

The California Department of Corporations late Friday said it closed an investigation that alleged that E-Trade misrepresented so-called "auction-rate securities" to buyers as "safe, cash-equivalent products, even though the products faced increasing liquidity risk.

E-Trade also will pay nearly $1.1 million to California in administrative penalities and agreed to abide by a legal order prohibiting violations of state securities laws, including not supervising brokers sellling auction-rate securities, the department said in a statement.

An E-Trade spokeswoman declined to comment.

The agreement was part of a global settlement last October between E-Trade and a number of states that could result in as much as $100 million worth of refunds for people who still hold auction-rate securities they purchased from E-Trade.

According to the Department of Corporations, an auction-rate security is "a non-conventional, fixed-income, long-term security, whose dividend rates are reset periodically at auctions at set weekly or monthly intervals."

California Corporations Commissioner Jan Lynn Owen praised the settlement for providing "relief for many individuals and small business investors who lost funds in the collapse of the auction-rate securities market."


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