TD Ameritrade has agreed to settle the SEC's allegations that it failed to reasonably supervise its registered representatives who sold shares of the Reserve YieldPlus Fund.

The firm has agreed to distribute $10 million to eligible customers who continue to hold the fund's shares. TD Ameritrade settled without admitting or denying the SEC's allegations.

According to the SEC, some of TD's reps mischaracterized the fund as a a money market fund and failed to disclose the nature or risks of the fund to customers.

The fund sought to provide higher returns than a money market fund while seeking to maintain a net asset value of $1.00, SEC officials said. The NAV of the fund dropped to 97 cents on September 16, 2008 after Reserve wrote down the fund's investments in commercial paper issued by Lehman Brothers Holdings.

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Company Press Release

SEC CHARGES TD AMERITRADE FOR FAILING TO SUPERVISE ITS REPRESENTATIVES WHO SOLD SHARES OF THE RESERVE YIELD PLUS FUND

Washington, D.C., Feb. 3, 2011 – The Securities and Exchange Commission today charged TD Ameritrade Inc. for failing to reasonably supervise its registered representatives, some of whom misled customers when selling shares of the Reserve Yield Plus Fund, a mutual fund that “broke the buck” in September 2008. According to the SEC's order, TD Ameritrade's representatives offered and sold the fund through the firm’s various sales channels prior to Sept. 16, 2008. The order finds that a number of the representatives violated the securities laws when they mischaracterized the fund as a money market fund, as safe as cash, or as an investment with guaranteed liquidity. They also failed to disclose the nature or risks of the fund when offering the investment to customers. TD Ameritrade failed to prevent the misconduct by its representatives because it did not establish adequate supervisory policies and procedures or a system to implement them with respect to the offers and sales of the fund.

To settle the SEC's charges, TD Ameritrade has agreed to distribute approximately $10 million to eligible customers who continue to hold shares of the fund.

"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," said Julie Lutz, Associate Director of the SEC's Denver Regional Office. “TD Ameritrade failed to establish the policies and procedures necessary to reasonably supervise its employees and prevent these misrepresentations to investors."

The SEC's administrative order finds that the Reserve Yield Plus Fund sought to provide higher returns than a money market fund while seeking to maintain a net asset value (NAV) of $1.00. The fund's NAV fell to 97 cents on Sept. 16, 2008, after the Reserve wrote down the fund’s investments in commercial paper issued by Lehman Brothers Holdings Inc.

The SEC's order finds that thousands of TD Ameritrade's customers continue to hold a majority of the fund's shares. They have received approximately 95 percent of their original principal investments in the fund following distribution of most of the fund's liquidated assets to all of its shareholders.

Without admitting or denying the SEC's allegations, TD Ameritrade consented to the SEC’s order, which censures the firm. As part of the order, TD Ameritrade also agrees to:

Distribute $0.012 per share of the fund to eligible customers who hold such shares within 30 days of the order's issuance.

Provide notice of the terms of the SEC’s order to all eligible customers and display information concerning the terms of the order on the firm’s website.

The SEC's case was investigated by Richard M. Bayus II, Noel M. Franklin and Laura M. Metcalfe of the SEC’s Denver Regional Office in coordination with an examination of the firm conducted by Denise S. Saxon and Lonnie L. Morgan of the Denver office and Matthew J. Jenkins of the Salt Lake Regional Office.

 

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