California Announces Settlement with E*Trade Securities to Recover Millions for Investors in Auction Rate Securities
SACRAMENTO, CA (January 13, 2012) – The California Department of Corporations today announced a
settlement agreement with E*Trade Securities LLC to facilitate the return of up to $20 million dollars to
investors in California. Today’s agreement will settle an investigation alleging E*Trade misrepresented
auction rate securities (ARS) to investors as safe, cash-equivalent products, even though the products faced
increasing liquidity risk.
“This multi-million dollar agreement provides relief for many individuals and small business investors who
lost access to funds in the collapse of the auction rate securities market,” Commissioner Jan Lynn Owen
said. “We are pleased that this negotiation with E*Trade will return money to many investors who suffered
losses and illiquidity when the auctions failed and their assets were frozen.”
Under the settlement with E*Trade, the brokerage will offer to repurchase all auction rate securities sold to
California customers. E*Trade must also continue to use their best efforts to identify and locate customer
who purchased eligible auction rate securities.
Terms of the settlement provide that E*Trade pay $1,095,015.21 in administrative penalties to the State
and agree to abide by a Desist and Refrain order prohibiting violations of California’s securities law
including failure to supervise its employees in the sale of auction rate securities.
The Department extends its gratitude to the North American Securities Administrators Association
(NASAA) and its multi-state Auction Rate Securities Task Force, of which California has been an active
participant. Settlement negotiations previously occurred with other broker-dealers nationwide who sold
auction rate securities without adequate investor protections.
Working with NASAA and other state regulators, the Department of Corporations has successfully settled
auction rate securities cases with fourteen brokerages. These settlements have covered up to $26 Billion
worth of securities potentially eligible for repurchase, and have resulted in penalties paid to California in
excess of $67 Million.
Anyone interested in having auction rate securities repurchased by E*Trade should contact the firm
directly. E*Trade has agreed to establish a dedicated toll-free telephone line and website by January 16,
2012. E*Trade has committed to repurchase eligible securities through May 15, 2012.
An auction rate security is a non-conventional, fixed income, long-term security whose dividend rates are
reset periodically at auctions at set weekly or monthly intervals. In the recent past, many brokerages
represented auction rate securities to investors as safe, cash-equivalent products, even though the
products faced increasing liquidity risk.The Department of Corporations is California’s investment and financing authority and is responsible for the regulation, enforcement, and licensing of securities, franchises, off-exchange commodities, investment
and financial services, independent escrows, consumer and commercial finance lending, residential
mortgage lending, payday lenders, check sellers, bill payers, and debt reduction services
To view the Department of Corporation’s “Findings of Fact, Conclusion of Law, and Consent Order” for
E*Trade, please go to: http://www.corp.ca.gov/ENF/pdf/e/eTrade_Finding_011012.pdf.
The Department of Corporations is California’s investment and financing authority and is responsible for the
regulation, enforcement, and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending, residential mortgage lending, payday lenders, check sellers, bill payers, and debt reduction services. Consumers should contact the department to check on the status of the companies, investments or other services they are considering and the licensing status of the person at the Department’s toll-free Consumer Resource Center at 1-866-ASK-CORP (1-866-275-2677) or at