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E*Trade “Heard Us” and Pays Off $100 Million ARS

Posted by Larry Doyle on October 25, 2011 7:35 PM |

Let there be no doubt that public pressure appropriately applied can bring real results in the midst of little courage displayed by far too many in the world of financial regulation. How so?

The North American Securities Adminstrators Association recently announced a settlement with E*Trade Securities LLC in which that financial institution will return approximately $100 million to firm clients who have had their funds frozen in ARS—those supposed cash surrogate money market alternative investments—since February 2008.

This settlement is better than any other settlement I have witnessed over the last three years. The specifics include: 

E*TRADE agreed to buy back at par value all outstanding auction rate securities purchased through the firm by individual investors before February 2008. Other terms of the multi-state settlement require E*TRADE to:

>Fully reimburse all individual investors who sold their auction rate securities at a discount after the auction market failed;

>Consent to a special, public arbitration process to resolve claims of consequential damages suffered by individual investors who were unable to access their funds;

>Maintain a dedicated toll-free telephone assistance line, website and email address to provide information about the terms of the final order and to answer questions from investors;

>Reimburse certain investors for the cost of loans after the investor took out a loan from E*TRADE because the investor’s auction rate securities were frozen; and

>Pay to the states monetary penalties of $5 million and reimburse certain costs of the investigation.

This announcement is clearly great news and the end of a three and a half year nightmare for these individual investors.

Do not think for a second, though, that this settlement merely happened out of the mere generosity of E*Trade’s heart. The simple fact is a number of private individuals and financial regulators in selected states have doggedly pursued E*Trade on this ARS front for the last few years.

Let’s rewind the Sense on Cents tape and reflect back to early August 2010 when a single individual E*Trade investor shared his story and expressed his gratitude to the Colorado Attorney General for pursuing an ARS case against E*Trade. I captured this individual’s sentiments in writing, “E*Trade, Can You Hear Us Now?

MY SAGA OF HOW PERSISTENCE FINALLY PAID OFF IN COLORADO in the auction rate security sales fraud by E*Trade.

“I never surrendered nor gave up. The Empire struck back vs the Evil Dark Side of the Sith on this one, it only took me since June of 2008 to get the Colo AG to do this! Sort of like Luke Skywalker finding that one small vunerable spot on the Death Star.

A lot of credit has to go to my Congressman an Ed Perlmutter (D) 7th Dist CO. Yes, I know he is a Dem., however he made himself available to me to meet him in person in mid-May this year regarding this matter, and he said he would “get on it” !

This gentleman is the ONLY ONE in “power” who would EVER listen. I will campaign for him this fall. ( I would not care if he was TEA Party or a communist, he works for the little people here in Colorado.)

He actually interceded and prodded the AG’s office in CO to finally act! Of course they had documentation from me and 39 others to support this.

E*Trade fought it and fought it, and denied, and fought it again, I understand, finally Fred Joseph did the right thing! Kudos to him as well.

Persistence…….I have invested probably over 1000 man hours in 30 months on this matter, I started by writing Prez. Bush to Obama and all in between, (Regulators etc, FINRA, SEC )that you could imagine.

It almost cost me a divorce, and I had to get treated for anxiety and high blood pressure from this stress. Half of my life saving are at stake, and I have a son who is going to college next year.

I worked 20 years for this money and E*Trade effectively stole it.

I could go on and on, and describe the direct abuse I had to endure from them, but you get the idea. Can you image in April 2008 some E*Trade rep. called me at home at 3:00am from a blocked cell number and told me I would be sorry if I proceeded and continued to file my complaints!!?? What kind of thugs are they?!

Fortunately, I am a strong 62 year old, as many would have given up!  I made this a crusade for a just cause! I have a deep thanks to give you ( ref : Larry Doyle ), as it was/is your site that at times gave me the courage to go on, when I saw there were voices out there like you with courage to expose this.

A Million Thanks for all of your efforts L.D.!!!  You are a hero in my mind! (LD’s edit: No, I’m not!!)

I hope the other 39 victims in Colorado appreciate it, some had 10X more at stake than I, unbelievable how they just rolled over.


To this individual, the recent settlement is a clear indication that E*Trade heard you. I can assure readers that the persistence of this one individual had a meaningful impact on the State of Colorado pursuing its case against E*Trade in the first place.

There were others who also would not be denied. I commend them as well. I see no sign of the SEC or FINRA in this investigation or settlement. Where are they? Isn’t it their mandate to protect investors? Helloooo??!!

Jack E. Herstein, NASAA President and Assistant Director of the Nebraska Department of Banking & Finance Bureau of Securities,

….commended the work of state securities regulators in Colorado and Texas, who participated in the investigation and settlement negotiations, as well as those in North Carolina and Pennsylvania, who participated in the investigation.

Aside from these regulators and selected investors, who and what else may have impacted this settlement with E*Trade. Readers here may recall that I referenced earlier this year that a documentary on the ARS crisis was in the works. Is it possible that the message embedded in that expose created pressure which led to this settlement?

For those E*Trade investors who may now finally be able to rest easy, this settlement is fabulous news and LONG overdue.

For the thousands of others who continue to have their billions of dollars frozen in ARS, the fight continues.

I now call on the NASAA to take this E*Trade settlement and use it as the precedent to publicly pressure and compel each and every other institution still holding out on making their ARS clients whole to do so forthwith. Every individual still holding frozen ARS, I strongly recommend you to take this story directly to your NASAA state regulator.

44 months of waiting to be made whole on securities marketed and distributed as cash surrogate money market alternatives is far too long and far too painful for any individual or institution to have to suffer.

Questions, comments, constructive criticisms encouraged and appreciated.

Larry Doyle

Isn’t it time to  subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook? Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

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