FINRA found that the brochures failed to adequately disclose liquidity risks for ARPS. 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.
Instead, the brochures contained misleading statements which described the ARPS as safe and liquid investments.
Also, FINRA found that Nuveen failed to maintain adequate supervisory procedures to ensure that the materials it used to market the auction rate preferred securities accurately described the features and risks of the securities.
FINRA executive vice president and chief of enforcement Brad Bennett said Nuveen was aware of facts that raised significant red flags about the ability of investors to obtain liquidity for their Nuveen auction rate securities yet failed to revise their marketing brochures to disclose these risks. This failure deprived investors of important information.
Nuveen neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
