Two subsidiaries of SunTrust Banks have been fined a total of $5 million for underplaying the risk of certain investments to clients.
The Financial Industry Regulatory Authority on Tuesday fined SunTrust Robinson-Humphrey $4.6 million the agency said for failing to adequately disclose the increased risk that certain auction rate securities could fail, and for using sales materials that didn’t properly divulge risks in the investments.
Auction rate securities are essentially a type of long-term debt largely issued by governments and large corporations, with yields on that debt reset periodically.
The market for these securities froze during the financial crisis. Many brokers of auction rate securities have been buying them back under settlements with regulators.
SunTrust Robinson-Humphrey also was fined for having inadequate supervisory procedures and training related to selling the investments, and for disclosing nonpublic information to its Atlanta-based parent company.
SunTrust Investment Services was fined $400,000 for deficient training, sales materials and procedures related to the investments.
The SunTrust subsidiaries neither admitted nor denied the allegations in settling the case.
FINRA said the settlements wrap up previously announced agreements in principle with the two SunTrust companies. The earlier agreements in principle, announced in September 2008, were withdrawn in May 2009.
FINRA said following the start of its investigation, SunTrust Robinson-Humphrey and SunTrust Investment Services voluntarily repurchased about $381 million and $262 million of auction rate securities, respectively, from clients. The firms also agreed in the settlements announced Tuesday to take part in a FINRA-run arbitration program to resolve possible claims for damages by eligible investors.
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