A settlement has been reached between Morgan Stanley & Co. and the Colorado Division of Securities.
Morgan Stanley has agreed to buy back more than $127 million worth of auction rate securities from Colorado investors.
State securities regulators investigated the company after allegations that Morgan Stanley’s salespeople had advised certain clients that auction rate securities were safe, liquid and short-term investments. In reality, such securities are bonds with long-term maturities, whose short-term liquidity depends upon the auction process.
Securities Commissioner Fred Joseph said that Morgan Stanley failed to provide its sales or marketing staff with adequate training to be able to explain these products, or the mechanics of the auction process, to their customers. The auction rate securities markets froze in February of 2008. A wide range of investors suffered significant financial damage because the money they were told was liquid was tied up in the frozen ARS market, Joseph said.
This is the 10th settlement the securities commissioner has concluded. The other settlements were with Bank of America Securities, Credit Suisse Securities, JP Morgan Chase, Merrill Lynch, RBC Capital Markets, UBS Securities, Wachovia Securities, Goldman Sachs, Deutsche Bank Securities and Citigroup Global Markets.