SEC censures, fines First Southwest over auction-rate securities sales in 2003, 2004

By Cristal Cody

Springdale, Ark., May 27 - First Southwest Co. settled charges with the Securities and Exchange Commission based on its conduct in the auction-rate securities market, the SEC reported Tuesday in an order censuring the financial company.

First Southwest, without admitting or denying the findings, consented to a cease-and-desist letter and a $150,000 fine.

The company violated Section 17(a)(2) of the Securities Act of 1933, which prohibits material misstatements and omissions in any offer or sale of securities, according to the SEC order.

The SEC said the Dallas-based financial company willfully intervened in auctions in 2003 and 2004 by bidding for its proprietary account to prevent failed auctions and to prevent all-hold auctions without adequate disclosure.

The practice affected the clearing rate and investors received a lower or higher rate of return on their investments in some of the auctions, the SEC said. Investors may not have been aware of the extent the practices affected the clearing rate and the liquidity and credit risks.

The SEC also ordered that within six months, First Southwest must provide all customers who hold auction-rate securities, the issuers of the securities and broker-dealers with a written description of the company's auction bond practices and procedures. First Southwest also must post a notice on its web site within the next three months.

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