The financial authorities have suspended Norwegian stockbroker Terra Securities’ rights to trade securities and the stockbroker has gone into liquidation. Managing Director, Ola Sundt Ravnedal has also resigned.

According to Kredittilsynet, the Financial Supervisory Authority of Norway, Terra Securities made severe and systematic breaches against good business practice in relation to the firm’s investment advice given to four Norwegian municipalities, and Terra has now lost its rights to trade securities, as reported by Norwegian E24.

In a press release, Kredittilsynet said that Terra Securities failed to inform about essential risks before the municipalities made their investments and that the company offered its products to a target group for which they were not suitable.

The four Norwegian municipalities Rana, Hemnes, Hattfjelldal, and Narvik were enticed by Terra to invest NOK 451 million in US housing loans. However, it was surprising news to the four municipalities that they simultaneously guaranteed a NOK 3.6 billion loan to a hedge fund managed by Citibank. When the value of the housing loans decreased by 55%, the municipalities were forced to increase their investment, totalling NOK 84 million. A week ago, they were then told to invest a further NOK 20 million, which resulted in Narvik having to take out a loan in order to pay December salary to its employees.

On Tuesday the four municipalities refused to accept NOK 150 million from Terra Securities in compensation and they now risk Citibank’s forced selling of the bonds. In that case, NOK 350 million would be lost. A way around this could be for the municipalities to invest a further NOK 150-160 million in the hope that the bonds’ value will increase. However, they hope to claim money from Terra instead.

“Terra cannot just lean back and pass the bill to the municipalities”, Kjell-Idar Juvik, Hemnes’ Municipal Commissioner, said to the publication.

Minister of Finance, Kristin Halvorsen, dismisses the idea that the State should interfere and save the municipalities.

“The State cannot act as a guarantor for speculations. Terra must also take responsibility and stand up for those who have been good customers for many years”, Kristin Halvorsen told E24.