FINRA announced it fined Nuveen Investments $3 million for misleading marketing materials used to push its auction-rate preferred securities. Nuveen did not directly sell the securities to its customers, but it did create marketing brochures used by the brokers who sold the ARPS to retail customers. According to the FINRA news release, “The brochures were the primary sales and marketing material Nuveen created for the auction rate preferred securities. The brochures, also available on Nuveen’s website, failed to adequately disclose liquidity risks for ARPS.”
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said “Nuveen was aware of facts that raised significant red flags about the ability of investors to obtain liquidity for their Nuveen auction rate securities yet failed to revise their marketing brochures to disclose these risks. This failure deprived investors of important information.”
Par for the course, Nuveen neither admitted nor denied wrongdoing in the settlement. The company released a statement saying, “This settlement concludes a two-year investigation that followed the widespread failure of auctions for ARPS and for other auction rate securities generally beginning in mid-February 2008. In the settlement, Nuveen agreed to a censure and the payment of a $3 million fine. It is one of a number of settlements that broker dealers have entered into with FINRA in the aftermath of the collapse of the auction rate securities markets relating to disclosures in marketing materials. Nuveen has cooperated with FINRA throughout the investigation.”
Auction Rate Securities reset their coupon rates through periodic auctions, at which they are sold at par. The auction process came to a screeching halt in 2008 when broker-dealers stopped participating as bidders. The Nuveen ARPS were preferred shares issued by closed-end mutual funds to raise money for the funds to invest. Click here to learn more about Auction Rate Securities.
