Many of our clients hold investments in auction rate securities ("ARS") that may have been impacted by illiquidity in the ARS marketplace. Certain investors in ARS and regulatory agencies have alleged that financial institutions that sold ARS ("broker-dealers") may have violated laws relating to proper sales and marketing practices when advising their clients to invest in ARS. Recently, a number of these broker-dealers entered into settlement agreements ("settlements") with the Securities and Exchange Commission ("SEC") and various state regulatory agencies relating to their ARS activity. This DataLine addresses the accounting considerations for investors related to certain aspects of these settlement agreements.
Key Points
- A number of broker-dealers have entered into settlement agreements with the SEC and others relating to sales and marketing practices for auction rate securities (ARS)
- As a result of these settlement agreements, companies that invest in ARS may have a right to receive compensation for losses or to require broker-dealers to repurchase ARS
- Many factors impact when and how the settlement agreements should be recorded with certain alternatives resulting in an earnings mismatch
- Certain actions may mitigate the earnings mismatch that can be caused by the accounting for settlement agreements
* DataLines are available through PwC's CFOdirect Network (http://www.cfodirect.com/).
** The PricewaterhouseCoopers Guides are available through PwC's CFOdirect Network (http://cfodirect.pwc.com/CFODirectWeb).
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