Exhibit 10.39


 


FINANCIAL INDUSTRY
REGULATORY AUTHORITY


LETTER OF ACCEPTANCE, WAIVER AND CONSENT


NO.  20080130555


 


	
  TO:

  	
   

  	
  Department of Enforcement

  
	
   

  	
   

  	
  Financial Industry Regulatory Authority
  (“FINRA”)

  
	
   

  	
   

  	
   

  
	
  RE:

  	
   

  	
  Comerica Securities, Inc., (“Comerica”
  or “Respondent”)

  
	
   

  	
   

  	
  Member Firm

  
	
   

  	
   

  	
  BD No. 17079

  



 


Pursuant to NASD Rule 9216 of FINRA’s
Code of Procedure, Respondent submits this Letter of Acceptance, Waiver and
Consent (“AWC”) for the purpose of proposing a settlement of the alleged rule violations
described below.  This AWC is submitted
on the condition that, if accepted, FINRA will not bring any future actions
against Respondent alleging violations based on the same factual findings
described herein.


 


I.


 


ACCEPTANCE AND CONSENT


 


A.                                   Respondent
hereby accepts and consents, without admitting or denying the findings, and
solely for the purposes of this proceeding and any other proceeding brought by
or on behalf of FINRA, or to which FINRA is a party, prior to a hearing and
without an adjudication of any issue of law or fact, to the entry of the
following findings by FINRA:


 


BACKGROUND


 


Comerica has
been a registered broker-dealer and a member of FINRA (f/k/a National
Association of Securities Dealers or NASD) since August 1986.  Comerica, which conducts a
retail brokerage business, is a broker dealer subsidiary of Comerica Bank.  Comerica is headquartered in Detroit,
Michigan, and has over 70 active branches and 358 registered representatives.


 


RELEVANT
PRIOR DISCIPLINARY HISTORY


 


Comerica
has no relevant prior disciplinary history.


 

















 


OVERVIEW


 


During the period from May 31, 2006
through February 28, 2008 (“the relevant period”), Comerica violated NASD
and MSRB rules relating to communications with the public in its marketing
and sale of auction rate securities (“ARS”) and failed to maintain adequate
supervisory procedures concerning its sales and marketing activities regarding
ARS, as required by NASD and Municipal Securities Rulemaking Board (“MSRB”)
rules.


 


During the relevant period, Comerica used advertising and marketing materials for ARS that
were not fair and balanced and did not provide a sound basis for evaluating the
facts in regard to purchases of ARS. 
Among other things, during the relevant period, the materials did not contain
adequate disclosure of the risks of ARS, including the risks that:  (a) ARS auctions could fail, (b) 
investments in ARS could become illiquid, and 
(c) customers might be unable to obtain access to funds invested in
ARS for substantial periods of time. 
Such materials thus violated NASD Rules 2210, 2211, and MSRB Rule G-21
as discussed below.


 


Comerica also failed to establish and maintain a supervisory system,
including written supervisory procedures, that was reasonably designed to
achieve compliance with NASD and MSRB rules as it related to the marketing
and sale of ARS.  For instance, during
the relevant period, Comerica failed to maintain policies and procedures that
were reasonably designed to ensure that registered representatives: (a) accurately
described ARS to customers and (b) provided customers with full disclosure
of the risks of ARS investments.  Also,
during the relevant period, Comerica failed to provide adequate training to registered
representatives regarding the features and characteristics of ARS, especially
those affecting liquidity.


 


As a result of the foregoing, Comerica violated NASD Rules 2210,
2211, 3010 and 2110, and MSRB Rules G-21, G-27 and G-17.


 


FACTS AND VIOLATIVE CONDUCT


 


Background: Auction Rate
Securities


 


ARS
are long-term securities with interest rates or dividend yields that are reset
periodically through an auction process.(1)  Historically, ARS were
held mainly by institutional investors, but in recent years a retail market
developed for these securities, with a typical minimum investment of $25,000. 
Although the maturity periods of ARS range from five years to 30 years
or more for debt obligations and no stated maturity for closed-end fund
preferred shares, auctions provide the primary source of liquidity for ARS
investors and typically occur every 7, 14, 28 or 35 days.


 






(1) The
primary types of ARS are municipal bonds, student loan-backed auction rate
certificates issued by trusts that hold student loans, and preferred shares
issued by closed-end funds and collateralized by the assets in the funds.


 


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ARS
can become illiquid when an auction fails. 
ARS auctions fail when the supply of ARS being auctioned exceeds the
demand for the securities in that auction. 
When an ARS auction fails, investors receive a penalty interest rate or
dividend until the next auction but are unable to sell their securities at that
time.  As a result, ARS may not be
appropriate for investors who have a short-term need for the funds they are
investing.


 


Securities firms play
different roles in the ARS market.  An “Underwriter”
brings the ARS to market as an intermediary for the issuer of the
security.  An “Auction Agent,” which can
be a bank, conducts the ARS auction by collecting orders from broker-dealers,
determines the “clearing rate,” the highest rate accepted in the auction that
becomes the interest or dividend rate that applies until the next auction, and
calculates the allocation of the securities among Auction Dealers.  An “Auction Dealer” or “Remarketing Agent” is
a broker-dealer that solicits bids for the securities from their customers,
submits them to the Auction Agent and usually receives a fee paid by the
issuer.  Firms acting in
these capacities are sometimes known as “upstream” firms.  In
the past, certain upstream firms placed bids for ARS for their proprietary accounts in order to, among other
things, support the auctions and prevent them from failing.(2)


 


In contrast to upstream firms, firms sometimes
known as “downstream” firms do not act as agents for issuers in any
capacity.  Instead, downstream firms act
in the traditional broker role as agents for their customers and place bids
with Auction Dealers and Remarketing Agents on the customers’ behalf to
purchase and sell ARS.  Downstream firms
are paid fees by Auction Dealers and Remarketing Agents (which may vary by
dealer and type of security) for effecting trades in ARS.


 


In February 2008, auctions for ARS began to
fail on a widespread basis.  Many of
those failures have continued until the present time, notwithstanding that
certain ARS issuers redeemed particular ARS in the period since the February 2008  failures. 
Nevertheless, many investors, including those who need access to their
funds, continue to be unable to sell their ARS holdings.


 






(2) 
The Securities and Exchange Commission has previously brought a series of
enforcement actions against underwriters, auction dealers and auction agents in
the ARS market, which did not include Comerica. 
See  Bear Stearns & Co., Inc.; Citigroup Global
Markets, Inc.; Goldman Sachs & Co.; J.P. Morgan
Securities, Inc.; Lehman Brothers Inc.; Merrill, Lynch Pierce,
Fenner & Smith Inc.; Morgan Stanley & Co. Inc. and Morgan
Stanley DW Inc.; RBC Dain Rauscher Inc.; Banc of America Securities LLC; A.G.
Edwards & Sons, Inc.; Morgan Keegan & Co., Inc.;
Piper Jaffray & Co.; Suntrust Capital Markets Inc.; and Wachovia
Capital Markets, LLC (Securities Act of 1933, Release No. 53888, May 31,
2006); Deutsche Bank Trust Company Americas, the Bank of New York, and
Wilmington Trust Co. (Securities Act of 1933, Release No. 8767, January 9,
2007); Citigroup Global Markets, Inc., successor by merger to Legg
Mason Wood Walker Inc. (Securities Exchange Act of 1934, Release No. 55712,
May 7, 2007); and First Southwest Company (Securities Exchange Act
of 1934, Release No. 57869, May 27, 2008).


 


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ARS
ACTIVITIES BY COMERICA


 


During the
relevant period, Comerica acted as a downstream firm.  Comerica sold approximately $5,374,000,000 of
ARS to its customers, primarily auction rate preferred securities, during that
relevant period.  As of February 28,
2008, approximately $1,300,000,000 of such ARS was held in 1080
retail accounts at Comerica.  As of the
date a settlement in principle was reached in this matter, September 16,
2008, customers held approximately $566,000,000 of ARS in Comerica retail
accounts that were purchased through Comerica during the relevant period.


 


VIOLATIONS


 


Communications with the
Public:  NASD Rules 2210, 2211 and
MSRB Rule G-21


 


NASD Rule 2210(d)(1)(A) requires that:


 


All member communications
with the public shall be based on principles of fair dealing and good faith,
must be fair and balanced, and must provide a sound basis for evaluating the
facts in regard to any particular security or type of security, industry or
service.


 


NASD Rule 2211 provides that materials distributed to registered
or associated persons must also meet the requirements of NASD Rule 2210(d)(1) and
MSRB Rule G-21 governs advertisements relating to municipal securities.


 


Comerica
used materials with customers and prospective customers that were not fair and
balanced and did not provide a sound basis for evaluating the facts in regard
to purchases of ARS.


 


Among other things, the materials used by Comerica failed to adequately
disclose the risks of investing in ARS, including the risk that ARS auctions could fail, that
investments in ARS could become illiquid, and that customers might be unable to
obtain access to funds invested in ARS for substantial periods of time.  The materials used by
Comerica also made inappropriate comparisons between ARS and other materially
different investments.


 


For example, during the relevant period, on
the Respondent’s website, ARS are
identified as a “Cash Management” product suitable for short term
investing.  The website failed to
disclose the potential for illiquidity with ARS.


 


In an institutional sales
PowerPoint presentation that was approved by Comerica for use by its registered
representatives, Comerica again identified ARS as a “cash management instrument
... characterized by liquidity, safety and access to principal.”  Comerica noted that “[t]hey are commonly used
for transaction purposes, or as a place to store readily available savings.”  Similar to the Respondent’s website, the
PowerPoint also failed to disclose the illiquidity risks of these investments.


 


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As a result of the foregoing, Comerica
violated NASD Rules 2210 and 2211 and MSRB Rule G-21 and, as a result,
also violated NASD Rule 2110 and MSRB Rule G-17.


 


Supervisory
Procedures:  NASD Rule 3010 and MSRB
Rule G-27


 


NASD Rule 3010 requires each member firm
to establish and maintain a system, including written procedures, to supervise
the activities of its employees that is reasonably designed to achieve
compliance with the federal securities laws and NASD rules.


 


MSRB Rule G-27 requires each broker, dealer and municipal
securities dealer to supervise
the conduct of its municipal securities activities to ensure compliance with
MSRB rules and the federal securities laws, and requires each firm to
establish and maintain a system, including written procedures, to supervise
municipal securities activities that is reasonably designed to achieve
compliance with the federal securities laws and MSRB rules.


 


Comerica failed to establish and maintain procedures that were
reasonably designed to ensure that it marketed and sold ARS in compliance with
the federal securities laws and applicable NASD and MSRB rules.  For instance, Comerica failed to maintain
procedures reasonably designed to ensure that its registered representatives
accurately described ARS to customers during sales presentations and that
representatives provided customers with adequate disclosure of the risks of
ARS, including the
risk that ARS auctions could fail and that investments in ARS could therefore
become illiquid.  Comerica also failed to provide adequate training
to its registered representatives regarding the features and characteristics of
ARS and the differences between ARS and other investments.


 


Comerica also failed to
establish and maintain procedures that were reasonably designed to ensure that
the written materials it used in connection with the marketing and sale of ARS
complied with the appropriate disclosure standards in NASD Rules 2210,
2211, and MSRB Rule G-21.


 


As a result of the foregoing, Comerica
violated NASD Rule 3010 and MSRB Rule G-27 and, as a result, violated
NASD Rule 2110 and MSRB Rule G-17.


 


OTHER
FACTORS


 


In
determining the appropriate sanctions in this matter, FINRA notes that,
pursuant to the settlement in principle previously reached in this matter,
Comerica agreed to address harm sustained by customers as a result of the
illiquidity in the ARS market that began in February 2008, as described
below.


 


Additionally,
Comerica took the following actions, prior to FINRA’s investigation, to address
harm sustained by customers as a result of the illiquidity in the ARS market:


 


Comerica referred its ARS customers to Comerica Bank to
obtain bank 


 


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loans at interest rates comparable to that which was
paid by the underlying ARS.


 


Comerica enhanced its website to include a
question and answer section relating to ARS after the failures.


 


SANCTIONS


 


B.                                     Respondent
also consents to the imposition of the following sanctions:


 


1.  A censure.


 


2.  A fine in the amount of $750,000.


 


	
  ·

  	
   

  	
  Respondent agrees to pay the monetary sanction(s) upon notice
  that this AWC has been accepted and that such payment(s) are due and
  payable. Respondent has submitted an Election of Payment form showing the
  method by which it proposes to pay the fine imposed.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Respondent specifically and voluntarily waives any right to claim
  that it is unable to pay, now or at any time hereafter, the monetary
  sanction(s) imposed in this matter.

  



 


Buyback Offer


 


3.  Comerica or an affiliate has offered,
pursuant to an agreement with FINRA, to purchase at par ARS, which were
purchased through Comerica between May 31, 2006 and February 28, 2008
by investors in the Relevant Class, that are subject to auctions that have not
been successful as of September 16, 2008 and are not subject to current
calls or redemptions (“Eligible ARS”) from all investors in the Relevant Class,
as described below in paragraph 4.  For
purposes of this AWC, the “Relevant Class” shall be comprised of all Individual
Investors who purchased Eligible ARS from Comerica at any time between May 31,
2006 and February 28, 2008 into accounts maintained at Comerica.  In addition to natural persons, the following
entities are treated as “Individual Investors”:


 


a. Any account with the following
beneficial owner:


1.
                                    non-profit charitable organizations; and


2.
                                    religious corporations or entities.


 


b. Any account, with the
following beneficial owner, the value of which at the time of any ARS purchase
made through Comerica did not exceed $10 million:


1.
                                    trusts;


2.
                                    corporate trusts;


3.
                                    corporations;


4.                                     Employee pension plans/ERISA and Taft Hartley
Act plans;


5.
                                    educational institutions;


 


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6.
                                    incorporated non-profit organizations;


7.
                                    limited liability companies;


8.
                                    limited partnerships;


9.
                                    non-public companies;


10.
                              partnerships;


11.
                              personal holding companies; and


12.                                 unincorporated associations.


 


4.  Comerica or an affiliate shall commence the
buyback of all Eligible ARS no later than 30 days following the date this AWC
is accepted by FINRA (the “Buyback Date”) and be completed no later than 60
days thereafter.  On October 1,
2008, Comerica or an affiliate commenced the offer to buyback all Eligible ARS
(the “Buyback Offer”) and such Buyback Offer is expected to be completed no
later than December 19, 2008 (the “Buyback”).


 


5.  Commencing six months from the date the AWC
in this matter is accepted by FINRA, Comerica shall make its best efforts to
provide liquidity to all other investors
not in the Relevant Class but who purchased Eligible ARS from
Comerica.  Such best efforts, which may
include, but are not limited to, offers to purchase Eligible ARS and/or offers
of low or no-interest loans, extended on the basis of reasonable and customary
credit standards, shall be completed no later than 60 days following
commencement of the best efforts.  On October 1,
2008, Comerica or an affiliate offered to purchase Eligible ARS from all other
investors not in the Relevant Class, but who purchased Eligible ARS at any time
between May 31, 2006 and February 28, 2008 through Comerica.  This buyback offer ends on December 19,
2008.


 


6.  Comerica has provided notice to current and
former customers in the Relevant Class of the settlement terms set forth
in this AWC.  In addition, Comerica
contemporaneously established a dedicated telephone assistance line, with
appropriate staff, to respond to questions from investors concerning the terms
of the settlement.


 


Relief
for Investors Who Sold Below Par


 


7.  No later than the completion of the Buyback,
any Individual Investor in the Relevant Class that Comerica can reasonably
identify who sold Eligible ARS below par between February 28, 2008 and September 16,
2008 will be paid the difference between par and the price at which the
investor sold the Eligible ARS.


 


Consequential
Damages Claims


 


8.  Comerica agrees to arbitrate claims for
consequential damages filed by investors in the Relevant Class relating to
Eligible ARS through a Special Arbitration Program (“SAP”) in accordance with rules set
forth by FINRA Dispute Resolution under the authority of this AWC. Such rules will
be issued and available to Comerica and investors through FINRA’s web
site.  Pursuant to its agreement with
FINRA, Comerica has notified 


 


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Individual
Investors in the Relevant Class that an independent arbitrator selected under
the auspices of FINRA, will be available for the exclusive purpose of
arbitrating any Comerica Individual Investor’s consequential damages
claim.   This SAP process is voluntary on
the part of qualifying investors and does not preclude those investors who
elect not to participate in the SAP from pursuing other available
remedies.  Arbitration under the SAP
shall be conducted by a single public arbitrator, unless the claim for
consequential damages is $1,000,000 or greater, in which case a panel of three
public arbitrators may be appointed.


 


9.  Any
Individual Investor in the Relevant Class who chooses to pursue such a
consequential damages claim shall bear the burden of proving that it suffered
consequential damages and that such damages were caused by its inability to
access funds consisting of such Individual Investor’s Eligible ARS purchase(s) through
Comerica.  Comerica shall be able to
defend itself against such claims provided, however, solely for the purposes of
the SAP, Comerica shall not contest liability related to the sale of ARS; and
provided further that Comerica shall not be able to use as part of its defense
an Individual Investor’s decision not to sell Eligible ARS holdings prior to
the Buyback Offer.


 


Report
Concerning Compliance with Settlement


 


10.                                  Comerica shall provide FINRA with a report
no later than 30 days following the completion of the Buyback setting forth (a) the
names and account numbers of  all
Individual Investors in the Relevant Class to whom the Buyback Offer was
made, (b) an accounting of each instance in which such  Individual Investors accepted the Buyback
Offer and sold Eligible ARS holdings to Comerica, and (c) the names,
account numbers, and an accounting of those 
Individual Investors in the Relevant Class paid pursuant to
paragraph 7 hereunder.  Comerica shall
also notify FINRA within 30 days of the completion of the best efforts
undertaking set forth above in paragraph 5 of the nature and results of such
efforts.  The accuracy of such report(s) delivered
pursuant to this paragraph 10 shall be certified by the Chief Compliance
Officer of Comerica.


 


The sanctions imposed herein shall be
effective on a date set by FINRA staff.


 


For good cause shown, and upon receipt of a
timely written request from Comerica, FINRA staff may extend any of the dates
set forth above.


 


II.


 


WAIVER OF
PROCEDURAL RIGHTS


 


Respondent specifically and voluntarily waives the following rights
granted under FINRA’s Code of Procedure:


 


A.                                   To
have a Formal Complaint issued specifying the allegations against Respondent;


 


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B.                                     To
be notified of the Formal Complaint and have the opportunity to answer the
allegations in writing;


 


C.                                     To
defend against the allegations in a disciplinary hearing before a hearing
panel, to have a written record of the hearing made and to have a written
decision issued; and


 


D.                                    To
appeal any such decision to the National Adjudicatory Council (“NAC”) and then
to the U.S. Securities and Exchange Commission and a U.S. Court of Appeals.


 


Further, Respondent specifically and voluntarily waives any right to
claim bias or prejudgment of the General Counsel, the NAC, or any member of the
NAC, in connection with such person’s or body’s participation in discussions
regarding the terms and conditions of this AWC, or other consideration of this
AWC, including acceptance or rejection of this AWC.


 


Respondent further specifically and voluntarily waives any right to
claim that a person violated the ex parte prohibitions of NASD Rule 9143
or the separation of functions prohibitions of NASD Rule 9144, in
connection with such person’s or body’s participation in discussions regarding
the terms and conditions of this AWC, or other consideration of this AWC,
including its acceptance or rejection.


 


III.


 


OTHER MATTERS


 


Respondent understands that:


 


A.                                   Submission
of this AWC is voluntary and will not resolve this matter unless and until it
has been reviewed and accepted by the NAC, a Review Subcommittee of the NAC, or
the Office of Disciplinary Affairs (“ODA”), pursuant to NASD Rule 9216;


 


B.                                     If
this AWC is not accepted, its submission will not be used as evidence to prove
any of the allegations against Respondent; and


 


C.                                     If
accepted:


 


1.                                       this
AWC will become part of Respondent’s permanent disciplinary record and may be
considered in any future actions brought by FINRA or any other regulator
against Respondent;


 


2.                                       this
AWC will be made available through FINRA’s public disclosure program in
response to public inquiries about Respondent’s 
disciplinary record;


 


3.                                     FINRA
may make a public announcement concerning this AWC and the subject matter
thereof in accordance with NASD Rule 8310 and IM-8310-3; and


 


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4.                                       Respondent
may not take any action or make or permit to be made any public statement,
including in regulatory filings or otherwise, denying, directly or indirectly,
any finding in this AWC or create the impression that the AWC is without
factual basis.  Respondent may not take
any position in any proceeding brought by or on behalf of FINRA, or to which
FINRA is a party, that is inconsistent with any part of this AWC.  Nothing in this provision affects Respondent’s
right to take legal or factual positions in litigation or other legal
proceedings in which FINRA is not a party.


 


D.                                    Respondent
may attach a Corrective Action Statement to this AWC that is a statement of
demonstrable corrective steps taken to prevent future misconduct.  Respondent understands that it may not deny
the charges or make any statement that is inconsistent with the AWC in such
Statement.  This Corrective Action
Statement does not constitute factual or legal findings by FINRA, nor does it
reflect the views of FINRA or its staff.


 


 


Respondent certifies that it has read and understands all of the
provisions of this AWC and has been given a full opportunity to ask questions
about it; that it has agreed to its provisions voluntarily; and that no offer,
threat, inducement, or promise of any kind, other than the terms set forth
herein and the prospect of avoiding the issuance of a Complaint, has been made
to induce Respondent to submit it.


 


 


	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
  Respondent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Comerica Securities, Inc. 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 


 


Reviewed by:


 


 


	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  



 


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Accepted by
FINRA:


 


 


	
   

  	
   

  	
  Signed on behalf of the

  
	
  Date

  	
   

  	
  Director of ODA, by delegated 

  
	
   

  	
   

  	
  authority

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 


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ELECTION OF PAYMENT FORM


 


Respondent
intends to pay the fine set forth in the attached Letter of Acceptance, Waiver
and Consent by the following method (check one):


 


o                                    A personal,
business or bank check for the full amount;


 


o                                    Wire transfer;


 


o                                    Credit card
authorization for the full amount;(1) or


 


o                                    The
installment payment plan (only if approved by FINRA staff and the Office of
Disciplinary Affairs).(2)


 


 


	
   

  	
   

  	
  Respectfully submitted,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
  Respondent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Comerica Securities, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 






 (1) 
Only Mastercard, Visa and American Express are accepted for payment by credit
card.  If this option is chosen, the
appropriate forms will be mailed to you, with an invoice, by FINRA’s Finance
Department.  Do not include your credit
card number on this form.


 


 (2)  The installment
payment plan is only available for fines of $5,000 or more.  Certain interest payments, minimum initial
and monthly payments, and other requirements apply.  You must discuss these terms with FINRA staff
prior to requesting this method of payment.