A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered Raymond James Financial to buy back $2.5 million in auction-rate securities (ARS) from investor Greg Merdinger.
According to a July 27 Wall Street Journal article, Merdinger filed a claim in June 2009 against Raymond James & Associates and Raymond James Financial Services on allegations of breach of fiduciary duty and contract. In the addition to the $2.5 million ARS buyback, FINRA awarded Merdinger $86,000, plus 5% interest on the $2.5 million until Raymond James buys back the securities.
FINRA’s ruling stated that Merdinger initially wanted to invest in money-market funds, but changed his mind based on recommendations from Raymond James. Instead, Raymond James advised him to invest in auction-rate securities, which it said were safer. In making the recommendation, Raymond James concealed the risks associated with the products, FINRA said.
When the market for auction-rate securities collapsed in February 2008, Raymond James continued to advise Merdinger to buy auction-rate securities. As reported in the Wall Street Journal article, copies of emails showed that financial managers at Raymond James realized there were problems in the auction-rate market long before its ultimate collapse.
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