Investment Firm Fined for Misleading Marketing Materials

by Wall Street Fraud on June 6, 2011

Securities fraud attorneyThe Financial Industry Regulatory Authority (FINRA) recently announced that it has fined Nuveen Investments, LLC, a Chicago investment firm, $3 million for creating misleading marketing materials used in sales of auction rate preferred securities (ARPS).

The Nuveen Funds' ARPS were a form of auction rate securities, which are long-term securities with interest rates or dividend yields that are reset periodically through an auction process.

Nuveen did not sell the ARPS to customers, but it created marketing brochures that were used by the broker-dealers who sold the ARPS to retail customers. By early 2008, over $15 billion of Nuveen Funds' ARPS had been sold to retail customers.

FINRA found that the brochures failed to adequately disclose liquidity risks for ARPS. Specifically, Nuveen neglected to include the risks that auctions for the ARPS could fail, investments could become illiquid, and that customers might be unable to obtain access to funds invested in the ARPS for a period of time should the auctions fail.

To the contrary, the brochures contained misleading statements that described the ARPS as safe and liquid investments.

In addition, Nuveen failed to revise disclosures in their brochures after a lead auction manager responsible for approximately $2.5 billion of the ARPS notified Nuveen in early January 2008 that it intended to stop managing Nuveen auctions. On January 22, 2008, the lead manager did not submit support bids in an auction for a series of Nuveen auction rate preferred stock and that auction failed.

FINRA found that the auction failure and Nuveen's inability to find a replacement for the lead manager raised serious questions for Nuveen about whether investors in Nuveen's ARPS would be able to obtain liquidity for the securities in future auctions.

Despite this, Nuveen failed to revise its marketing brochures to reflect these risks and, thus, the brochures were misleading. Thereafter, in February 2008, widespread auction failures occurred throughout the auction rate securities market, including auctions for Nuveen funds ARPS.

As this case demonstrates, it is often wise to look beyond the marketing materials for an investment product and conduct your own independent research.

At Wall Street Fraud, we are dedicated to offering assistance to those who have been hurt by improper corporate or investment practices.

If you have been the victim of stock brokerage fraud, securities fraud, mutual fund fraud, stockbroker fraud, annuities fraud, or any other type of investment fraud, please contact us today for a free case evaluation. Our talented and aggressive legal and professional staff is eager to help you recover your losses.

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