The SEC alleges that in late 2007 and early 2008, the firms misrepresented to certain customers that ARS were safe, highly liquid investments. Specifically, the SEC claims that the ARS market was deteriorating, and as a result they made acquisitions of ARS to prevent failed auctions. As the credit markets failed, the SEC further alleges, the companies were unable to make continued purchases to bolster the ARS market, yet they failed to make their customers aware of these risks. Finally, by mid-February 2008, the SEC alleges that "Bank of America, RBC, and Deutsche Bank decided to stop supporting the ARS market, leaving their customers holding billions in illiquid ARS." Without admitting or denying the SEC's allegations, the firms have agreed to be permanently enjoined from violations of the broker-dealer fraud provisions and to comply with a number of undertakings, including:

  • Offering to purchase ARS at par from individuals, charities, and small or medium businesses that purchased those ARS from the firm, even if those customers moved their accounts.
  • Using their best efforts to provide liquidity solutions for institutional and other customers without taking advantage of liquidity solutions for its own inventory before making those solutions available to these customers.
  • Paying eligible customers who sold their ARS below par the difference between par and the sale price of the ARS.

In announcing the settlement Scott Friestad, Deputy Director of the SEC's Division of Enforcement, stated that "[t]hrough these latest settlements and prior ARS settlements with