According to regulatory filings with the Securities and Exchange Commission (SEC), earlier this month regulatory authorities sent a "Wells Notice" to E*Trade Securities alleging securities law violations in connection with the firm's sale of Auction Rate Securities. A Wells Notice is not a finding of wrongdoing, but a letter that describes the securities law violations that staff recommends pursuing. E*Trade contends that the action is unwarranted and that the company is cooperating with the investigation.
Recently in E*Trade Securities Category
Colorado Securities Commissioner Files Notice of Charges Against E*Trade Securities Regarding Auction Rate Securities
My securities law firm is currently involved in a securities arbitration claim against E*Trade on behalf of a California non-profit organization that purchased $2 million worth of Auction Rate Securities (ARS) at the recommendation of their E*Trade financial advisor who representated to them that ARS were highly liquid, short-term cash management vehicles paying a slightly better rate of return that could be sold at par with no loss of principal. The issues in my case are nearly identical to the allegations set forth in the "Notice of Charges" recently filed against E*Trade by the Securities Commssioner for the State of Colorado on July 21, 2010, charging E*Trade Securities LLC with securities fraud in connection with the firm's sale of ARS.
If you purchased ARS at the recommendation of an E*Trade financial advisor, I'd love to hear about your experience.
In a nutshell, here's what the State of Colorado is alleging:
- E*Trade financial advisors represented ARS as a safe, liquid investment, comparable to a money market account.
- E*Trade failed to explain the auction process to investors; that auctions could fail; and that investors would be left holding an illiquid long-term investment if the auctions failed.
- E*Trade knew or should have known the risk that auctions would fail--and did in fact fail in 2007 and 2008.
- Early on, E*Trade was aware of the possible collapse of the ARS market due to prior auction failures and regulatory action, among other warning signs.