RBC Capital Markets Corp. of New York will buy back up to $800 million in auction rate securities from more than 2,000 investors under a preliminary settlement announced today by the Securities and Exchange Commission and state securities regulators.
RBC Capital Markets, part of Royal Bank of Canada of Toronto, is to use its best efforts to provide liquidity to other larger ARS investors under the agreement in principle, the SEC said.
No later than Dec. 15, RBC will offer to buy back at par value securities from individual investors with account values up to $10 million, as well as from charities or religious organizations with accounts valued up to $25 million, that bought the securities from RBC before the collapse of the market for the securities in February.
The bank is to reimburse fully individual investors who sold their securities at a discount after the market failed, and it will consent to a special public arbitration procedure to resolve other claims by individuals.
“The division of enforcement’s settlement in principle with RBC will quickly restore liquidity to those individual, charitable and small business investors who can least afford to have their funds unavailable in the short term,” division director Linda Chatman Thomsen said in a statement.
The settlement must still be approved by the commission.
It includes charges made in federal court that RBC misrepresented auction rate securities as safe and highly liquid equivalents to cash and money market funds.
RBS continued to market the securities as safe even though it was aware of escalating liquidity risks in the weeks and months before the collapse of the ARS market in February, the SEC said.
RBC then stopped supporting the auctions.
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