TD Ameritrade Settles Securities Investigation

Retail brokerage firm TD Ameritrade agreed on Monday to repurchase $456 million in auction-rate securities from investors as part of a settlement with the New York Attorney General's office and Securities and Exchange Commission.

TD Ameritrade
TD Ameritrade

Attorney General Andrew Cuomo's office also said it plans to sue the brokerage Charles Schwab saying it misrepresented the safety of such securities.

Cuomo's office has been at the forefront of pushing brokers and underwriters of auction-rate securities to repurchase them from investors who were left with steep losses after the market for the investments collapsed in early 2008.

The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt whose interest rates were reset at regular auctions, some as frequently as once a week. They were sold as being as safe as cash, but the market for them fell apart last year amid the downturn in the credit markets.

Over the past year, Cuomo's office has brokered a dozen settlements with other firms that wrote or sold the securities. Counting those settlements and others elsewhere around the country, more than 20 firms have agreed to repurchase $61 billion in the investments, according to the attorney general's office.

As the latest firm to reach a settlement, TD Ameritrade will repurchase all auction-rate securities it sold before Feb. 13, 2008 to individuals, charities, non-profits, small businesses and institutions.

TD Ameritrade, the brokerage unit of Omaha, Neb.-based TD Ameritrade Holding Corp., agreed to purchase all securities held by retail investors with accounts smaller than $250,000 within the next 75 days. It will repurchase the remaining securities by March 2010. The brokerage firm also agreed to reimburse investors who sold their securities at a loss after the market for them collapsed last year.

Aside from the settlement with TD Ameritrade, Cuomo's office sent a notice Friday to San Francisco-based Charles Schwab, saying it planned to sue the brokerage firm for claiming the securities were safe while selling them.

The notice gives Schwab five business days to respond and resolve the investigation.

In a statement, Schwab said no one could have foreseen the collapse of the entire auction-rate securities market, and that blame was unfairly laid on the brokerage firm for failing to disclose that risk. Schwab said it plans to fight the allegations.

TD Ameritrade shares fell 15 cents to $17.53 in afternoon trading. Shares of Schwab rose 6 cents to $17.14.