J.P. Morgan Chase & Co. will pay back $139 million worth of auction rate securities from Colorado investors, who found themselves unable to sell the securities after they had been frozen in the market.
The Colorado settlement is part of a multi-state agreement in which J.P. Morgan has bought back more than $17 billion of auction rate securities from all retail customers who had the securities during February 2008.
The settlement with the Colorado Division of Securities ends an investigation into allegations that J.P. Morgan failed to make sure all its sales representatives disclosed the nature and risks of auction rate securities to clients in the state.
Customers were told that auction rate securities were liquid, safe, short-term investments and advisers did not highlight the risk that in the event of a failed auction the securities would no longer be liquid. The ARS markets froze in February 2008, triggering a flood of complaints from investors who could not withdraw money from their accounts.
“Securing a liquidity solution for investors in Colorado has been the primary objection of our investigations of firms who sold auction rate securities,” said Colorado Securities Commissioner Fred Joseph.
The state is leading an effort to address problems in connection with the offer and sale of ARS securities. State regulators are investigating possible misconduct by other firms.