NEW YORK (Reuters) - TD Ameritrade Holding Corp will reimburse about $10 million to customers to settle U.S. Securities and Exchange Commission charges it misled them about the safety of a mutual fund.
The SEC had accused TD Ameritrade of failing to reasonably supervise sales representatives who mischaracterized the Reserve Yield Plus Fund as being as safe as cash, having guaranteed liquidity, or carrying federal insurance.
Yield Plus invested in securities designed to produce higher returns than money market funds, although like those funds was designed to maintain a constant $1 per share price.
However, it “broke the buck” on September 16, 2008, with its value falling to 97 cents per share, after the fund wrote down its investments in Lehman Brothers Holdings Inc, which had filed for bankruptcy protection a day earlier.
“It is critical that customers get accurate information about investment products, and broker-dealers must provide the training and supervision that enables their representatives to deliver this important guidance,” Julie Lutz, an SEC associate director, said in a statement announcing the settlement.
The SEC said “thousands” of TD Ameritrade customers still hold a majority of the Yield Plus shares and have so far recovered about 95 percent of their original principal. The $10 million distribution equates to about 1.2 cents per share.
TD Ameritrade did not admit wrongdoing in agreeing to the settlement, which included a censure.
Kristin Petrick, a TD Ameritrade spokeswoman, in an email said the settlement “allows us to move forward and provide clients with additional compensation in this difficult situation.” The Omaha, Nebraska-based company added that the accord will not affect earnings.
Canada’s Toronto-Dominion Bank owns about 46 percent of TD Ameritrade, regulatory filings show.
Money funds are designed but not guaranteed to maintain their principal.
The SEC separately filed in May 2009 a civil fraud lawsuit accusing Reserve Management Co, which oversaw Reserve Yield Plus, and its co-founder and money fund pioneer Bruce Bent Sr of deceiving investors about its funds’ safety.
Reserve Primary, the company’s largest fund, also saw its value fall to 97 cents per share after Lehman went bankrupt. The company has distributed to investors more than $50 billion that had been in that fund after Lehman’s bankruptcy.
Reporting by Jonathan Stempel in New York; editing by Andre Grenon, Bernard Orr