E-Trade settlement could refund up to $20 million to California investors

California regulators have announced a final settlement in a dispute with E-Trade Securities that could refund up to $20 million to Golden State investors.

The California Department of Corporations late Friday said it closed an investigation that alleged E-Trade misrepresented so-called “auction-rate securities” to buyers as “safe, cash-equivalent products, even though the products faced increasing liquidity risk.”

E-Trade also will pay nearly $1.1 million in administrative penalties to the state and agreed to abide by a legal order prohibiting violations of California securities laws, including not supervising brokers selling auction-rate securities, the department said in a statement.

The agreement was part of a global settlement in October between E-Trade and a number of states that could result in as much as $100 million worth of refunds for people who still own auction-rate securities they purchased from E-Trade.


According to the Department of Corporations, an auction-rate security is “a non-conventional, fixed-income, long-term security, whose dividend rates are reset periodically at auctions at set weekly or monthly intervals.”

California Corporations Commissioner Jan Lynn Owen praised the settlement for providing “relief for many individuals and small businesses investors who lost funds in the collapse of the auction-rate securities market.”

An E-Trade spokeswoman declined to comment.

In a related settlement also announced Friday, state Controller John Chiang said that he reached an agreement with Prudential Insurance Co. of America that may return up to $20 million to the families of deceased life insurance policyholders in California.


The settlement is the result of an audit of more than a score of insurers to determine whether they complied with state unclaimed property laws.

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