FINRA STEPS IN
The Financial Industry Regulatory Authority fined Nuveen Investments $3 million for creating misleading marketing materials for the sale of auction-rate preferred securities. The long-term securities have interest rates or dividend yields reset periodically through an auction process. The preferred shares were issued by closed-end mutual funds to raise money that the funds would invest. Broker-dealers sold the securities to investors, not Nuveen. FINRA said the company neglected in brochures to include the risks that auctions could fail and investments could become illiquid. Further, Nuveen failed to revise disclosures after a lead auction manager of about $2.5 billion of the instruments notified Nuveen that it would stop managing the auctions — and at least a couple failed.
A federal judge in Dallas preliminarily approved an $80 million settlement of two class-action suits by Securities America. Investors had sued over Securities America's role in the sale of private placements by Medical Capital and Provident Royalties. Judge W. Royal Furgeson Jr. is expected to ratify the decision at a July 25 hearing. "The settlement is in no way an admission of guilt by Securities America or our advisors," according to a company spokeswoman. "We continue to believe the company, our advisors and their clients were victims of the alleged fraud perpetrated by the management of Medical Capital and Provident Royalties." At a hearing in March, Securities America officials testified that arbitration awards and legal costs could cripple the firm. Afterward, its parent company, Ameriprise Financial, stepped in to back a settlement, then announced in April that it would sell the business.
The SEC adopted rules to reward whistleblowers who provide tips that lead to successful enforcement actions. The program was implemented under the new Dodd-Frank Act. A whistleblower must voluntarily provide original information that helps the agency successfully enforce securities laws in a federal court or administrative action, and for which the agency obtains sanctions of more than $1 million. Under the rules, a whistleblower who provides information to the SEC is protected from employment retaliation if the person reasonably believes the information relates to a violation that has occurred, is ongoing or is about to occur.