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Raymond James Taking Center Stage in ARS Tragedy

Posted by Larry Doyle on August 27, 2010 12:05 PM |

The play that has more acts and actors than the longest running shows on Broadway is regrettably anything but entertaining.

Although the entire financial industry would clearly hope it could wake up from the nightmare known as auction-rate securities, the fact is this ongoing saga is no bad dream but a very real tragedy. Which player seems to be taking center stage in this ongoing epic disaster? Enter stage right, Raymond James.

A month ago, we witnessed in a WSJ review, Raymond James Ordered to Buy Back Auction-Rate Securities:

An arbitration panel ordered two units of Raymond James Financial Inc. to buy back $2.5 million in auction-rate securities from an investor.

The Financial Industry Regulatory Authority panel ruled in favor of Greg Merdinger, who filed a claim in June 2009 alleging a breach of fiduciary duty and contract by Raymond James & Associates and Raymond James Financial Services Inc. The panel also awarded Mr. Merdinger an additional $86,000, plus 5% interest on the $2.5 million until Raymond James buys back the securities.

Aside from the award, the most interesting element of this ‘act’ is the fact that:

Raymond James was still advising him to buy auction-rate securities into February 2008, when the auction market froze, and made one purchase the day after that occurred, Mr. Merdinger alleged. The market for auction-rate securities remains frozen, leaving many investors stranded.

Copies of emails that were considered during the proceeding allegedly showed that Raymond James financial managers knew there were problems in the auction-rate market well before it failed, according to Lawrence Byrne, a securities lawyer in Chicago who represented the investor.

Smoking gun perhaps? What exactly are in those e-mails? Think a whole host of other auction-rate securities holders might like to know? You think? Did those e-mails play a role in another Raymond James led auction-rate performance? When the curtain rose yesterday, the WSJ “reviewed” a similar play but with a twist entitled, Raymond James Forced to Buy Back Securities:

Raymond James & Associates Inc. and one of its brokers must buy back $925,000 in auction-rate securities from a Texas-based couple, a securities arbitration panel has ruled.

Wow. How dramatic. The broker is taking a bullet here as well. This is the first time I am seeing that.

Rex and Sherese Glendenning, of the Celina area in Texas, originally sought $1.4 million in the case they filed in February 2009, against Raymond James & Associates, a unit of Raymond James Financial Inc. and Larry Milton, a broker associated with the firm in Fort Worth, Texas. They alleged breach of fiduciary duty, misrepresentation and civil fraud, among other things, according to a ruling by a Financial Industry Regulatory Authority arbitration panel.

The Finra panel ordered Raymond James and Mr. Milton to pay the Glendennings $925,000 in a ruling dated Aug. 20. The Glendennings must then sign the securities over to Raymond James, according to the ruling.

How many more ‘acts’ like this are waiting to play out featuring Raymond James? How many more brokers could be the understudy to Mr. Milton?

It is unusual, however, to find a broker liable in an auction-rate case, says Mr. Aidikoff. His firm typically doesn’t name brokers in auction-rate cases, he says, because many didn’t know the full story behind what they were selling, he says. The ruling against Mr. Milton could reflect possible actions that were revealed through testimony, he says.

Possible actions revealed through testimony? Sounds ominous. How about if we bring that testimony from backstage onto center stage? Think there are other ARS-holders who may want to compare notes?

What exactly was Raymond James management telling their brokers during those fateful days when the ARS market was freezing and ultimately totally froze?

Has anybody seen that play? Care to share?

Larry Doyle

Related Sense on Cents Commentary
Sense on Cents/Raymond James
Sense on Cents/Auction-Rate Securities

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Boomer

    What I would have paid to have been a fly on the wall around RJ’s offices back in late ’07 and early ’08. Or even better perhaps a bug in the phone.

    What a drama. Too bad so many people’s lives and livelihoods have been so significnalty impacted in this mess. Thanks for staying on top of this.

  • John W

    E*TRADE HAD A COMPULSORY COURT HEARING on Aug 17th, 2010 in the Office of Colorado Administrative Courts regarding their fraud in selling Auction Rate Securities, and I cannot seem to get information out of the Court or the Colorado AG’s office as to what happened.. like there is a gag order. I am going into Denver and file a “Freedom of Information Act” form, and get the information next week.

    Was it postponed, did CO revoke their license, or other, or are they trying to settle tp pay back the defrauded CO investors.???

    E*Trade is trying to cover up what should be public proceedings!!1 What are they hiding, and what are the attornys trying to hide. Really fishy stuff.

  • John W

    I know 99% for a fact that the Colorado Attorney General found, ” legal discovery” a similar “smoking gun” email from an E*trade fixed income manager dated in October 2007 telling reps to get the hell out of E*trade’s principle position in ARPS.
    This may unfold like RJ..

    • Marc

      John W, Do you mind sharing the name or initals of the platinum person that sold you ars? Are you under the impression that platinum or relationship manager reps at ET sold ARS in addition to financial advisors. Also have you read the email that you speak about from fixed income in 2007?

      • John W

        The FA at ETrade was, who even marked the trade confirm SOLICITED , initial : SAT

        The co-conspirator on Platinum was : KLT

        at least in my case.
        I have not read the email referenced by the Colorado AG office in their complaint, but they clearly reference it, and have it. Dont know if it was the one I turned over, or from other Colorado folks defrauded by ETrade.

        I received like stuff from E*Trade in late 2007

        read the Colo complaint also.

        • John W
        • Marc

          Thank you John W, When you say co-conspirator, do you mean they simply introduced you to the FA, or do you mean they brought up the ARS product first, than transfered you to SAT to place the trade.

          • John W

            Hi Marc,

            When I got snarred in this trap in Nov. 2007 E*Trade was running a big banner IRA ad on a ” Higher yielding JP Morgan money market fund at 2.99%, although instead of being able to self place the order on the web I had to call my Platinum team a KLT, I asked him to just enter the money market order, but he said my fixed income dept. a SAT has a product just as good if not better, and he transfered me to FS >>> initial SAT whould told “we E*Trade” have a money market equivalent short term bond fund that can be sold every 7 days that pays 0.5 % more. He called it a short term corporate bond fund… we all know the rest of the story.
            ps SAT is specifically named in the Colorado Court complaint, you will get it there.


  • Pete

    If there are e-mails and testimony indicating that RJ’s management acted inappropriately, then where are the indictments? Are the regulators, attorneys general, and securities commissioners allowing management to get a free pass here?

    Keep pressing….keep pressing…keep pressing…

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