TD Ameritrade has agreed to distribute approximately $10 million to customers who continue to hold shares of the Reserve Yield Plus Fund, a mutual fund that famously "broke the buck" on the net value of its assets in September 2008.
The $10 million is part of a settlement with the Securities and Exchange Commission, The SEC charged TD Ameritrade with "failing to reasonably supervise its registered representatives" when the Reserve Yield Plus Fund saw the value of its shares fall below $1 in the midst of the credit crisis erupting at the time.
"Breaking the buck"-where the value of shares that were supposed to be fixed at $1 went below that-was virtually unprecedented at the time.
The SEC order found that a number of the representatives violated the securities laws when they mischaracterized the fund as a money market fund, as safe as cash. Money market mutual funds carry no insurance by the Federal Deposit Insurance Corporation and invest in short-term debt investments.
In its own marketing materials, the Reserve fund carried a Moody's Aaa rating medal and made it clear that it the fund would maintain a $1 net asset value-and had "guaranteed liquidity."
The SEC said TD Ameritrade "failed to disclose the nature or risks of the fund when offering the investment to customers."
TD Ameritrade did not establish adequate supervisory policies and procedures or a system to implement them that kept the representative from misrepresenting the fund, the SEC said.
Advisers Bullish on 2011
After a difficult three years, advisers have a lot to be optimistic about.
"This has been a stealth bull market," said Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, at the TD Ameritrade Institutional national conference in San Diego, Calif.
Siegel's staunch optimism is backed by data. Yes, the Standard and Poor's 500 has declined 15% from its high. But the bounce back from the market has been really strong, he explained. Over the long-term, from 1802-2010, real returns in the stock market have remained at 6.7%. "There are a lot of decades when it won't be there," he said. "Some years will be better and some will be worse."
Siegel said that although many point out how badly this past decade has been, looking at the last 20 years, the real return on the stock market is the same as the long-term average of 6.7% per year.
"There are good decades and bad decades," he said. Yet when compared to bonds, with a return of 1.8% from 1946-2010, returns on equities look phenomenal.
Siegel believes there is a great American bond bubble. Yields declined until early October and have been rising ever since, he said. "The bond bubble is beginning to burst," he said. "It's similar to the bubble in technology."
Meanwhile, the U.S. just came out of the biggest bear market since the Great Depression. But Siegel is extraordinarily bullish, anticipating 2011 earnings for the S&P 500 will increase 95.46 points to 1257. The record increase over 12 months is 91.47 points in the 12 months ending June 2007, he said.
Quote of the Week
"In terms of the risks within the municipal bond market, we believe the likelihood of a state defaulting on its obligations is remote, though certainly not impossible."
- Matthew Whitbread
Senior Analyst, FundQuest