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SEC Charges TD Ameritrade for Auction Rate Securities Sales Practices

Settlement Enables ARS Customers to Receive All of Their Money Back


Washington, D.C., July 20, 2009 — The Securities and Exchange Commission today announced settled charges against TD Ameritrade, Inc. for making inaccurate statements when selling auction rate securities (ARS) to customers. The settlement reached with the online brokerage will provide its customers the opportunity to sell back to TD Ameritrade any ARS that they bought prior to the collapse of ARS market in February 2008.

According to the SEC's administrative order, TD Ameritrade's registered representatives told customers that ARS were an alternative to certificates of deposit and money market accounts, when in fact ARS were very different types of investments. Among other things, TD Ameritrade representatives did not tell customers about the complexity and risks of ARS, including their dependence on successful auctions for liquidity.

The SEC previously announced finalized ARS settlements with Citigroup and UBS, Wachovia, Bank of America, RBC Capital Markets, and Deutsche Bank. The SEC's Division of Enforcement previously announced a settlement in principle with Merrill Lynch.

"TD Ameritrade is the latest in a series of landmark ARS settlements that bring unprecedented relief to tens of thousands of investors," said Robert Khuzami, Director of the SEC's Division of Enforcement. "ARS customers of numerous firms can get back all of the money they invested in auction rate securities as more than $50 billion in liquidity is being made available to them through these historic settlements."

TD Ameritrade's ARS customers include individual investors, small businesses, small non-profit organizations, charities and religious organizations.

"TD Ameritrade improperly marketed ARS to retail customers as short-term investments without telling them about the special risks of the ARS market," said Donald M. Hoerl, Regional Director of the SEC's Denver Regional Office. "This settlement provides hundreds of millions of dollars to thousands of TD Ameritrade customers who hold ARS that are now illiquid."

The SEC's order finds that TD Ameritrade willfully violated Section 17(a)(2) of the Securities Act of 1933. The Commission censured TD Ameritrade, ordered it to cease and desist from future violations, and reserved the right to seek a financial penalty against the firm.

Without admitting or denying the SEC's allegations, TD Ameritrade consented to the SEC's order and agreed to:

  • Offer to purchase eligible ARS from individuals, charities, and those small businesses and institutions with assets at TD Ameritrade of $10 million or less.
  • Compensate eligible customers who sold their ARS below par by paying the difference between par and the sale price of the ARS, plus reasonable interest.
  • Reimburse excess interest costs to eligible ARS customers who took out loans from TD Ameritrade after Feb. 13, 2008.
  • At the customer's election, participate in a special arbitration process with those eligible customers who claim additional damages.
  • Establish a toll-free telephone assistance line and a public Internet page to respond to questions concerning the terms of the settlement.

The Commission wishes to alert investors that, in most instances, they will receive correspondence from TD Ameritrade and must advise TD Ameritrade that they elect to participate in the settlement. If they do not do so, they could lose their rights to sell their ARS to TD Ameritrade. Investors should review the full text of the SEC's order, which includes the terms of the settlement.

The SEC appreciates the assistance and cooperation of the New York Attorney General's Office, the Pennsylvania Securities Commission, and the North American Securities Administrators Association.

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For more information, contact:

Laura M. Metcalfe
Assistant Director, SEC's Denver Regional Office
(303) 844-1092



Modified: 07/20/2009