August 29, 2013

NY AG’s ARS Lawsuit Against Charles Schwab & Co. is Revived by Appeals Court

A New York Appellate Division’s panel has unanimously agreed to revive the state attorney general’s auction-rate securities lawsuit against Charles Schwab and Co. (SCHW). The 2009 securities case accuses the financial firm of committing fraud in its sale and marketing of the financial instruments. The decision reverses a state judge’s ruling to throw out the complaint.

According to the NY ARS lawsuit, the broker-dealer’s brokers made false representations that the securities were safe and liquid. In a 4-0 decision, the appeals panel said that the state had given enough evidence to merit a trial on two claims submitted per its Martin Act, a 1921 law that gives the attorney general of New York the ability to prosecute fraud without proof of intent. Under the law fraud is defined as acts that involve misleading or fooling the public.

Per the panel’s ruling, the claims are revived only as it pertains Schwab’s alleged misconduct before 9/5/07, which is when the first ARS sold by Schwab failed. The state wants the company to repurchase securities from customers and pay civil penalties and restitution.

However, the appeals court also upheld the dismissal of two claims not submitted under the Martin Act. It said that NY’s AG lacked standing to make them. Then-Attorney General Andrew Cuomo is the one that brought the lawsuit.

Unlike Merrill Lynch (MER), Citigroup (C), and UBS (UBS), Schwab was one of the brokerage firms that opted not to settle with Cuomo over ARS fraud claims. A Schwab spokesman maintains that the financial firm did not aggressively market auction-rate securities and that 98% of the ARS have ben redeemed from customers.

Auction-Rate Securities
ARS are long-term debt with interests that periodically reset via auctions. Banks fled the $330 billion auction-rate securities market in early 2008 and the market failed. Thousands of investors were left with illiquid securities they couldn’t sell even though financial representatives told them that the financial instruments were liquid, like cash.

Contact our ARS securities law firm today.

NY AG Gets Charles Schwab ARS Claims Revived, Law360, August 27, 2013

N.Y. appeals court revives claims against Charles Schwab, Reuters, August 27, 2013

Auction-Rate Securities


More Blog Posts:
JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System, Institutional Investor Securities Blog, February 14, 2013

Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

February 14, 2013

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System

A district court judge in Minnesota has ordered a $125 million auction-rate securities arbitration case filed by Allina Health System against UBS (UBS) to proceed.

U.S. District Judge Michael Davis found that claimant Allina is indeed a UBS client even though the financial firm had argued that under Financial Industry Regulatory Authority rules ARS issuers are not underwriter customers. The Minnesota non-profit healthcare system had filed its securities claim over ARS it issued in October 2007 that were part of a $475 million bond issuance to finance renovations and remodeling, as well as refinance debt. UBS was its underwriter.

Allina contends that the market collapsed in 2008 because UBS and other financial firms stopped putting in support bids to keep auctions from failing. The healthcare group says that because of this, it had to pay a great deal of money to refinance the securities and make higher bound payments after losing its bond insurance. Allina claims that UBS did not properly represent the ARS market risks, breached its fiduciary duties, and violated state and federal securities laws.

In his decision, Judge Davis noted other rulings in similar cases that rejected other banks’ contentions that the plaintiff was not considered a customer under FINRA rules. One need only look to last month’s 4th U.S. Circuit Court of Appeals decision to let Carilion Clinic proceed with its ARS arbitration case against Citigroup (C) and UBS. Davis also turned down UBS's claim that agreements it made with Allina mandated that any disputes be submitted to the New York courts or the American Arbitration Association.

Related Web Resources:
British watchdog fines UBS 9.45 mn pounds for mis-selling fund, Advisen/APF, February 12, 2013

UBS Fined $14.7 Million by U.K. on AIG Fund Sale Failings, Bloomberg, February 12, 2013


More Blog Posts:
UBS & Citi Do Have to Arbitrate Auction-Rate Securities Case Filed by Health Care Nonprofit Carilion Clinic, Institutional Investor Securities Blog, January 31, 2013

Despite Her Involvement in Dozens of Securities Cases, Brokerage Firms Continue to Clear Trades of Newport Coast Securities Broker Bambi I. Holzer, Stockbroker Fraud Blog, January 10, 2013

Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG, Stockbroker Fraud Blog, January 22, 2013

February 12, 2013

Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge

A US District judge is ordering Morgan Keegan & Co. to repurchase auction-rate securities and make a payment of $110,500 in an ARS lawsuit filed by the SEC that accuses the financial firm of misleading investors about these investments’ risks. The SEC contends that the $2.2B in securities that the firm sold left clients with frozen funds when the market failed in 2008.

Even after the financial firm started buying back ARS—it has since repurchased $2B in ARS of its own accord—the SEC decided to proceed with its securities case. The Commission contends that even as the ARS market failed, Morgan Keegan told clients that the securities being sold came with “zero risk” and were short-term investments that were liquid.

Now, Judge William Duffey Jr. has found that although Morgan Keegan’s brokers did not act fraudulently, some of them acted negligently when they left out key information and made misrepresentations when selling the securities. This including not apprising investors about the risk of failure, liquidity loss, or that interest rates might vary.

Duffey is the same judge who dismissed this very case in 2011. However, last May, the US Court of Appeals in Atlanta overturned his decision after determining that he wrongly found that verbal comments made to certain customers were not material because of disclosures that could be found on the financial firm’s web site.

Morgan Keegan Trial Judge to Decide SEC Case He Dismissed, Bloomberg.com, November 26, 2012


More Blog Posts:
Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker fraud Blog, October 30, 2012

Continue reading "Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge " »

February 9, 2013

Oppenheimer Must Pay $30M to US Airways Group Over ARS Losses

A Financial Industry Regulatory Authority arbitration panel says that Oppenheimer & Co. has to pay US Airways Group Inc. (LCCC) $30 million for losses that the latter sustained in auction-rate securities. The securities arbitration case is related to the airline group’s contention that the financial firm and one of its former brokers misrepresented certain ARS that were structured and private placement.

US Airways had initially sought $110M in compensatory damages and $26 million in interest and legal fees. The FINRA panel, however, decided that Oppenheimer and its ex-broker, Victor Woo, owed $30 million—Woo’s part will not be greater than what he made in commissions. Oppenheimer is now thinking about whether to submit a motion to vacate the arbitration panel’s order.

The financial firm is, however, going to go ahead with the arbitration it had filed against Deutsche Bank (DB) to get back the award money and associated costs from this case. Oppenheimer’s claim against Deutsche Bank is linked to the US Airways case but became a separate proceeding in 2010.

Oppenheimer contends that if any ARS misrepresentations were made to US Airways the source of blame is Deutsche Bank and its auction process, as well as on the credit ratings that were issued by Standard and Poor’s and Fitch Ratings.

Auction-Rate Securities
ARS are debt instruments with interest rates that are supposed to reset during auctions that occur on a monthly, weekly, or daily schedule. Many investors were unpleasantly surprised to find that their money became frozen when a number of auctions failed in 2008. They claim they were told that the securities were liquid and safe like cash.

You want to speak with an experienced ARS law firm that knows how to successfully handle this type of securities case.

Oppenheimer Ordered to Pay US Airways $30M, The Wall Street Journal, February 1, 2013

Oppenheimer v. Deutsche Bank (PDF)


More Blog Posts:
Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, January 11, 2012

Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011

Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31, Institutional Investor Securities Blog, August 6 2011

November 27, 2012

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal

Almost a year and a half after US District Judge William Duffey Jr. dismissed the SEC’s lawsuit accusing Morgan Keegan & Co. of misleading thousands of auction-rate securities investors about the risks involved with these investments, he must now rule on the same case again. This latest trial in federal court comes after the 11th U.S. Circuit Court of Appeals in Montgomery, Alabama dismissed Duffey’s decision on the grounds that he erred when he concluded that the verbal comments made by brokers to four clients were immaterial because of disclosures that were on the retail brokerage firm’s website. Morgan Keegan is a Raymond James Financial (RJF.N) unit.

In SEC v. Morgan Keegan & Company Inc., regulators are claiming that the brokerage firm told its clients that over $2B securities came with no risk, even as the ARS market was failing, and that the investments were short-term and liquid. The commission filed its ARS fraud lawsuit against the broker-dealer in 2009.

During opening statements at this latest trial, prosecutors again contended that the brokers did not tell the investors that their cash could become frozen indefinitely. Reports Bloomberg News, orange grower John Tilis, who is a witness in this case, said that he decided to invest $400K in ARS in 2007 because he thought they were a safe place to keep his money until he had to pay taxes in April the next year. Tilis claims that the firm’s broker had informed him that he would be easily able to get his funds when he needed them. Yet when Tilis attempted to do so, he said that all the broker would tell him is that the ARS couldn’t be sold. (Morgan Keegan later refunded his principal.)

The SEC is arguing that Morgan Keegan found out about a number of failed auctions in November of 2007. In March 2008, one month after even more auctions had begun failing, the brokerage company started mandating that customers that wanted to buy ARS sign statements noting that they were aware that it might be some time before the investments became liquid again.

Meanwhile, Morgan Keegan is maintaining that it did not fail to inform clients about the risks involved in auction-rate securities, which had a history of being very “safe and liquid.” The firm contends that not being able to predict the future is not the same as securities fraud (Duffey noted this same logic when he dismissed the SEC lawsuit last year), and that even prior to the SEC lawsuit, it bought back $2B in ARS from clients. Morgan Keegan says that those who took part in the buyback program did not lose any money.

Morgan Keegan Trial Judge to Decide SEC Case He Dismissed, Bloomberg, November 26, 2012

U.S. SEC fraud lawsuit vs Morgan Keegan revived, Reuters, May 2, 2012

SEC v. Morgan Keegan & Company Inc. (PDF)


More Blog Posts:

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities, Institutional Investor Securities Blog, May 8, 2012

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker fraud Blog, October 30, 2012

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker fraud Blog, September 6, 2011

Continue reading " Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal" »

August 23, 2012

2nd Circuit Affirms Dismissal of $18.5M Auction-Rate Securities Lawsuit Against Merrill Lynch Filed by Anschutz Corp.

The U.S. Court of Appeals for the Second Circuit has affirmed a lower court’s ruling to dismiss the ARS lawsuit filed against Merrill Lynch (MER), Merrill Lynch, Pierce, Fenner, and Smith Inc. ( MLPF&S), Moody’s Investor Services (MCO), and the McGraw-Hill Companies, Inc. (MHP). Pursuant to state and federal law, plaintiff Anschutz Corp., which was left with $18.95 million of illiquid auction-rate securities when the market failed, had brought claims alleging market manipulation, negligent misrepresentation, and control person liability. The case is Anschutz Corp. v. Merrill Lynch & Co. Inc.

According to the court, Merrill Lynch underwrote a number of the Anchorage Finance ARS and Dutch Harbor ARS offerings in which Anschutz Corp. invested. To keep auction failures from happening, Merrill was also involved as a seller and buyer in the ARS auctions and had its own account. Placing these support bids in both ARS auctions allowed Merrill to make sure that they would clear regardless of the orders placed by others. The financial firm is said to have been aware that the ARS demand was not enough to “feed the auctions” unless it too made bids and that its clients did not know of the full extent of these practices.

Per its securities complaint, Anschutz contends that the description of Merrill’s ARS practices, which were published on the financial firm’s website beginning in 2006, were misleading, untrue, and “inadequate.” The plaintiff accused the credit rating agency defendants of giving the ARS offerings ratings that also were misleading and false and should have been lowered (at the latest) in early 2007 when Merrill knew or should have known that the ratings they did receive were unwarranted.

Last year, the United States District Court for the Southern District of New York dismissed the ARS lawsuit, concluding that Merrill’s disclosures on its Web site had been “sufficient” to make Anschutz aware of Merrill’s ARS “support bidding practices.” In regards to the claims against the credit rating agency, the court found that the plaintiff did not succeed in alleging that there was any actionable misstatement under California or New York law because the challenged ratings were only “statements of opinion.”

Now, in affirming the district court’s decision to dismiss the ARS lawsuit, the appeals court has found that the “generalized and conclusory allegations” made by the plaintiff are not enough to plead that a violation of securities law occurred. The 2nd Circuit also affirmed the district court’s decision to dismiss the California statutory claims against Merrill on the basis that Anschutz did not allege that the harm it suffered occurred in that state or that the financial firm committed any behavior there that was relevant.

As for the claims against the credit ratings agency, the appeals court held that the plaintiff did not have any alleged contact or relationship with the defendants that would “remotely” meet the standard under New York law, which mandates that to make a negligent misrepresentation claim a plaintiff has to allege that because of “a special relationship” it was the defendant’s duty to provide the correct information.

If your losses are a result of a failed ARS and you believe that misconduct or negligence on the part of a financial firm or one of its advisers was a factor, please contact one of our auction-rate securities lawyers today.

Anschutz Corp. v. Merrill Lynch & Co. Inc.


More Blog Posts:

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities, Institutional Investor Securities Blog, May 8, 2012

Securities Fraud Lawsuit Against UBS Securities LLC by Detroit Pension Funds Won’t Be Remanded to State Court, Says District Court, Institutional Investor Securities Blog, January 17, 2011

August 6, 2012

UBS, Citigroup FINRA Arbitration with Nonprofit Over ARS Cannot Be Halted, Said District Court

The U.S. District Court for the Eastern District of Virginia said that Citigroup (C) and UBS (UBS)cannot preliminarily enjoin Financial Industry Regulatory Authority arbitration over an auction-rate securities offering that did not succeed. The case is UBS Financial Services Inc. v. Carilion Clinic. Carilion is a nonprofit health care and the two financial services firms had provided it with services, including underwriting, for an issuance of auction rate securities that ended up failing.

Per Judge John Gibney, Jr., in 2005, the nonprofit had looked to Citigroup and UBS for help in raising raise $308.465 million to renovate and grow its medical facilities. The two financial firms allegedly recommended that Carilion issue $72.24 million of bonds as variable demand rate obligations. The nonprofit then issued the rest of the funds—$234 million—as ARS, which are at the center of the case.

After the ARS market failed in 2008, the interest rates on Carillion’s ARS went up, forcing the nonprofit to refinance its debt so it wouldn’t have to contend with even higher rates. The auctions then started failing.

Carilion contends that it didn’t know that UBS and Citigroup had been helping to hold up the ARS market prior to its collapse (which they then stopped doing) and said it wouldn’t have issued the securities if they had known that this was the case. The nonprofit filed FINRA arbitration proceedings against the two financial firms and said it could submit the dispute as a “customer” of both even though arbitration isn’t a provision of their written agreements.

Citigroup and UBS sought to bar the arbitration with their motion for a preliminary injunction. The district court, however, rejected their contention that the nonprofit is not a customer of theirs (if this had been determined to be true, then Carilion would not be able to arbitrate against them in front of FINRA). It said that the nonprofit was a “customer,” to both UBS and Citigroup, seeing as both firms provided it with numerous financial services and were paid accordingly.

The court also turned down the financial firms’ argument that Carilion had waived its right to arbitration when it consented to a mandatory forum selection clause that requires for disputes to go through the litigation in front of the U.S. District Court for the Southern District of New York. It pointed out that the “forum selection clause” could only be found in the agreements with one of the parties and that language used, as it relates to arbitration, is ambiguous and would not be interpreted as a waiver of Carillion’s arbitration rights.

Carilion can therefore go ahead and have FINRA preside over its arbitration dispute.

UBS Financial Services Inc. v. Carilion Clinic, Reuters, July 30, 2012


More Blog Posts:
Texas Securities Fraud: BNY Mellon Capital Markets LLC Settles Allegations of Rigged Bond Bidding for $1.3M, Stockbroker Fraud Blog, January 24, 2012

Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 20, 2012

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities, Institutional Investor Securities Blog, May 8, 2012



Continue reading "UBS, Citigroup FINRA Arbitration with Nonprofit Over ARS Cannot Be Halted, Said District Court" »

May 8, 2012

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities

The 11th U.S. Circuit Court of Appeals has revived the US Securities and Exchange Commission’s fraud lawsuit against Morgan Keegan & Co. accusing the financial firm of allegedly misleading investors about auction-rate securities. The federal appeals court said that a district judge was in error when he found that alleged misrepresentations made by the financial firm’s brokers were immaterial. The case will now go back to district court. Morgan Keegan is a Raymond James Financial Inc. (RJF) unit.

The SEC had sued Morgan Keegan in 2009. In its complaint, the Commission accused the financial firm of leaving investors with $2.2M of illiquid ARS. The agency said that Morgan Keegan failed to tell clients about the risks involved and that it instead promoted the securities as having “zero risk” or being “fully liquid” or “just like a money market.” The SEC demanded that Morgan Keegan buy back the debt sold to these clients.

In 2011, U.S. District Judge William Duffey ruled on the securities fraud lawsuit and found that Morgan Keegan did adequately disclose the risks involved. He said that even if some brokers did make misrepresentations, the SEC had failed to present any evidence demonstrating that the financial firm had put into place a policy encouraging its brokers-dealers to mislead investors about ARS liquidity. Duffey pointed to Morgan Keegan’s Web site, which disclosed the ARS risks. He said this demonstrated that there was no institutional intent to fool investors. He also noted that a “failure to predict the market” did not constitute securities fraud and that the Commission would need to show examples of alleged broker misconduct before Morgan Keegan could be held liable.

Citing the US Supreme Court’s ruling in Basic v Levinson, the circuit court found that the misleading statements made by Morgan Keegan brokers and the alleged failure to reveal the known risks involving ARS could have easily been perceived by a reasonable investor to be a modification of the information about ARS that Morgan Keegan had made available. The 11th circuit panel also said that seeing as Morgan Keegan knew there were auctions that were failing in 2007 and early 2008, giving clients "general cautionary language" about the debt behind trading confirmations was not enough. (Although the panel agreed that a written disclosure of the risks involved could trump any sales pitch omissions, it pointed to circuit precedent, which did not allow this “as a matter of law.”)

The appeals court rejected the district judge’s narrow focus on how many alleged victims there might have been, as well as his emphasis on the Commission having to prove institutional intent.

Investors were left in a financial bind when the $330 billion ARS market froze in February 2008. They could not get their now frozen money from this largely, illiquid debt, which was a shock to them seeing as most of them were told that auction-rate securities were liquid, like cash. Morgan Keegan and other financial firms have since been pursued by regulators, as well as investors seeking financial recovery.

Over the last few years, a number of financial firms have had to pay back billions in dollars of ARS to their clients. Our auction-rate securities lawyers have been helping investors recover such losses. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Broker Omissions Could Doom Morgan Keegan, Courthouse News Service, May 7, 2012

Fraud lawsuit vs Morgan Keegan revived, Chicago Tribune, May 2, 2012

SEC v. Morgan Keegan & Co., 11th U.S. Circuit Court of Appeal (PDF)


More Blog Posts:
Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, January 11, 2012

Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million, January 14, 2012

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011

January 11, 2012

Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel

A Financial Industry Regulatory Authority arbitration panel has ordered Oppenheimer & Co. to repurchase the $5.98 million in New Jersey Turnpike ARS that it sold Nicole Davi Perry in 2007. The investor reportedly purchased the securities through Oppenheimer Holdings Inc. (OPY).

Perry, who, along with her father, filed her ARS arbitration claim against the financial firm in 2010, accused Oppenheimer of negligence and breach of fiduciary duty. She and her father, Ronald Davi, were reportedly looking for liquidity and safety, but instead ended up placing their funds in the auction-rate securities. They contend that they weren’t given an accurate picture of the risks involved or provided with a thorough explanation of the securities’ true nature.

Oppenheimer disagrees with the panel’s ruling. In addition to buying back Perry’s ARS, the financial firm has to cover her approximately $134,000 in legal fees.

It was just in 2010 that Oppenheimer settled the ARS securities cases filed against it by the states of New York and Massachusetts. The brokerage firm consented to buy back millions of dollars in bonds from customers who found their investments frozen after the ARS market collapsed and they had no way of being able to access their funds.

Oppenheimer is one of a number of brokerage firms that had to repurchase ARS from investors. These financial firms are accused of misrepresenting the risks involved and inaccurately claiming that the securities were “cash-like.” A number of these brokerage firms' executives allegedly continued to allow investors to buy the bonds even though they already knew that the market stood on the brink of collapse and they were selling off their own ARS.

ARS
Auction rate securities are usually corporate bonds, municipal bonds, and preferred stock with long-term maturities. Investors receive interest rates or dividend yields that are reset at each successive auction.

ARS auctions take place at regular intervals—either every 7 days, 14 days, 28 days, or 5 days. The bidder turns in the lowest dividend yield or interest rate he or she is willing to go to purchase and hold the bond during the next auction interval. If the bidder wins at the auction, she/he must buy the bond at par value.

Failed auctions can happen when there are not enough bidding buyers available to acquire the entire ARS block being offered. A failed auction can prevent ARS holders from selling their securities in the auction.

There are many reasons why an auction might fail and why there is risk involved for investors. It is important that investors are notified of these risks before they buy into the securities and that they only they get into ARS if this type of investment is suitable for their financial goals and the realities of their finances.

Panel Says Oppenheimer Must Buy Back $6M In Auction-Rate Securities, Wall Street Journal, January 10, 2012

Oppenheimer settles with Massachusetts, NY, Boston, February 24, 2010

More Blog Posts:
Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011

Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31, Institutional Investor Securities Blog, August 6 2011

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

Continue reading "Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel" »

July 29, 2011

SEC and SIFMA Divided Over Whether Merrill Lynch Can Be Held Liable for Alleged ARS Market Manipulation

In Wilson v. Merrill Lynch & Co. Inc., the Securities Industry and Financial Markets Association and the Securities and Exchange Commission have submitted separate amicus curiae briefs to the U.S. Court of Appeals for the Second Circuit that differ on whether Merrill Lynch can be held liable for allegedly manipulating the auction-rate securities market. While SIFMA argued that an SEC order from 2006 that settled ARS charges against 15 broker-dealers affirmed the legality of the auction practices when they are properly disclosed, the SEC said that Merrill did not provide sufficient disclosures about its conduct in the ARS market and therefore what they did reveal was not enough to “preclude the plaintiff from pleading market manipulation.”

It was last year that the U.S. District Court for the Southern District of New York dismissed an investor claim that Merrill Lynch, which was acting as underwriter, manipulated the ARS market to attract investment. The court said that the claimant “failed to plead manipulative activity” and agreed with the brokerage firm that adequate disclosures were made. After appealing to the Second Circuit, the investor requested that the SEC provide its thoughts on five court-posed questions about the adequacy of the financial firm’s disclosures and how they impacted allegations of reliance and market manipulation.

The SEC said that the plaintiff’s claim that Merrill manipulated ARS auctions don’t preclude him from pleading, for fraud-on-the-market reliance purposes, an efficient market. SIMFA, however, said the plaintiff was precluded from claiming “manipulative acts” because investors have been made aware through “ubiquitous industry-wide disclosures about auction practices” that broker-dealers’ involvement in ARS actions is impacted by the “natural interplay” of demand and supply.


Related Web Resources:

Auction-Rate Securities UPDATE: SEC Brief May Help ARS Investors, Business Insider, July 26, 2011

SEC Backs Investors in ARS Case, Squares Off With SIFMA Over Firm's Liability, BNA Broker/Dealer Compliance Report, July 27, 2011


More Blog Posts:

Credit Suisse Ordered to Pay STMicroelectronics N.V. $404M Over Improper ARS Investment, Institutional Investor Securities Blog, June 15, 2011

Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors, Institutional Investor Securities Blog, May 25, 2011

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011


Continue reading "SEC and SIFMA Divided Over Whether Merrill Lynch Can Be Held Liable for Alleged ARS Market Manipulation " »

June 15, 2011

Credit Suisse Ordered to Pay STMicroelectronics N.V. $404M Over Improper ARS Investment

In STMicroelectronics N.V. v. Credit Suisse Securities (USA) LLC, 2d Cir., No. 10-3847-cv, 6/2/11, the US U.S. Court of Appeals for the Second Circuit upheld an arbitration panel’s award against Credit Suisse Securities (USA) LLC for $405 million. The financial firm was accused of improperly investing STMicroelectronics N.V. (STM)’s money in high-risk auction-rate securities.

The court says that Credit Suisse offered ST the opportunity to invest in ARS in April 2006 even though the business needed to have cash or its equivalents easily at hand due to the cyclical nature of what it does. Prior to that, ST had invested its funds in safe, liquid securities, including money market deposits.

The court says that the financial firm “explicitly proposed” ARS investments and ST “explicitly accepted” investing only in these securities, which were supported by student loans that were federally guaranteed. Yet within a few days, the court says that Credit Suisse started buying higher yield, higher risk ARS for ST.

By January 2007, none of the ARS were backed by student loans anymore. Yet the financial firm sent an email to ST that concealed the investments “true nature.” All of ST’s ARS failed after the market collapsed and two of the Credit Suisse brokers in charge of the ST account would go on to be convicted of conspiracy and securities fraud charges.

ST later Financial Industry Regulatory Authority arbitration claim against Credit Suisse. The U.S. District Court for Southern District of New York later confirmed the panel's $406 million.

In its appeal, Credit Suisse attacked the award, claiming that arbitrator John J. Duval Sr. gave inaccurate and incomplete disclosures and was misleading because he suggested that he “worked for ‘both sides,’” when he actually was an expert witness for the claimants. The court rejected that contention. Credit Suisse also accused the arbitrators of “manifestly disregarding” the law when it reached its finding. The court rejected this contention too. The appeals court did, however, find that the district court should have credited the amount of the award funds that ST got from the sale of certain Deutsche Bank securities and, as a result, lowered the amount of interest due.

Credit Suisse Must Pay Tech Firm $404M, BNA Securities Law Daily, June 3, 2011

STMicroelectronics N.V. v. Credit Suisse Securities


More Blog Posts:

Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations, Institutional Investors Securities Blog, February 12, 2011

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Judge Gives Lower Sentence to Former Credit Suisse Broker Convicted of Auction-Rate Securities Fraud, Stockbroker Fraud Blog, January 30, 2010


Continue reading "Credit Suisse Ordered to Pay STMicroelectronics N.V. $404M Over Improper ARS Investment" »

May 25, 2011

Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors

According to the New Jersey Bureau of Securities, Wells Fargo Investments Inc. (WFC) and Goldman Sachs & Co. (GS) has repurchased $26.9 million in ARS tosettle securities allegations that they sold auction-rate securities to New Jersey investors without disclosing the risks involved. Goldman bought back $25.5 million in ARS (it will also pay a $959,794 civil penalty), while Wells Fargo Investments repurchased $1.37 million in ARS.

The Bureau says that Goldman Sachs did not properly supervise and train its salespeople to make sure that all of its clients knew of the mechanics involved in the auction market and that the ARS could become illiquid. The financial firm also is accused of failing to disclose to investors the risks involved in buying or owning ARS even as it was becoming aware that the market was in trouble. The Bureau also accused Wells Fargo Investments of not properly supervising or training its agents that marketed the securities.

The two Consent Orders against Goldman Sachs and Wells Fargo Investments are the 11th and 12th that the state’s Bureau of Securities has reached with financial firms over ARS that were sold to investors in New Jersey. As part of the settlements, several firms that sold and marketed ARS have offered to buy back $2.8 billion of these securities.

It was in 2008 that state offices started getting complaints from investors about problems related to ARS investments. New Jersey was one of the 12 states that became part of a task force that looked into whether financial firms misled investors that bought ARS, which were sold and marketed as liquid, safe, and like cash. When the ARS market did fail, many investors were unable to access their money as the securities became illiquid.

Related Web Resources:
Goldman Sachs and Wells Fargo Investments Agree to Repurchase $26.9 Million in Auction Rate Securities from N.J. Investors, Division of Consumer Affairs Announces, NJ.gov, May 16, 2011

New Jersey Bureau of Securities


More Blog Posts:

Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court, Institutional Investor Securities Blog, April 21, 2011

Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed, Institutional Investor Securities Blog, March 4, 2011

Auction-Rate Securities Investigations by SEC and NY Attorney General Are Ongoing, Stockbroker Fraud Blog, April 21, 2011

Continue reading "Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors" »

April 21, 2011

Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court

The U.S. District Court for the Northern District of California says that the auction securities lawsuit filed by Anschutz Corp. against Deutsche Bank Securities Inc. and a number of credit rating agencies can proceed. Anschutz bought DBSI ARS between July 206 and August 2007 through Credit Suisse. The plaintiff is seeking damages and other relief related to the ARS it bought that was underwritten by DBSI, which also served as its broker-dealer.

Anschutz contends that it bought the securities believing that they were liquid because of the DBSI’s deceptive and manipulative activities. The plaintiff claims that by serving as market maker, DBSI ensured that the auctions would be successful as long as it kept supporting the bids. To make the ARS appear liquid, DBSI also allegedly “manipulated the market” by putting in support bids for every auction that the securities were involved in as well as for other ARS for which it was the lead or sole broker-dealer. When DBSI stopped making bids in July 2007, the auctions failed the following month. Anschutz contends that not only did DBSI know this would happen, but also, by acting as the only broker-dealer that could take part in certain securities’ auctions, the financial firm made it seem as if there was enough third party demand and was able to lower the auctions’ interest rates.

Regarding its claims against rating agencies, Anschutz says that the latter relaxed their rating system to get DBSI’s business. The plaintiff contends that the AAA ratings that the agencies issued were misleading and false but knew that was the way to get paid. Anschutz also says that the agencies should have known or knew that DBSI was creating an artificial market for the ARS.

Related Web Resources:
Deutsche Bank, Rating Agencies Fail To Topple Investor Suit Over ARS Activities, BNA Broker/Dealer Compliance Report, March 30, 2011

Anschutz Corp. v. Merrill Lynch & Co. Inc.


More Blog Posts:
Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed, Institutional Investor Securities Blog, March 4, 2011

Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations, Institutional Investor Securities Blog, February 12, 2011

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities, Stockbroker Fraud Blog, November 19, 2008

Continue reading "Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court" »

March 4, 2011

Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed

The U.S. District Court for the District of Massachusetts says that, under the 1934 Securities Exchange Act and the Massachusetts’ Uniform Securities Act, Akamai Technologies Inc.’s (AKAM) auction-rate securities lawsuit that seeks to hold Deutsche Bank AG liable for $200 million in losses can proceed. The judge ruled that the Internet content delivery firm had properly pleaded a material misrepresentation or omission in violation of Section 10(b) of the '34 Securities Exchange Act, which is necessary for a control person claim under Section 20(a). The court also held that Akamai clearly pleaded Deutsche Bank's control over Deutsche Bank Securities Inc., the subsidiary that allegedly advised the company to buy the toxic ARS.

Per the court, DBS was the broker and investment adviser for Akamai Securities Corp. and Akamai Technologies Inc. Akamai told the investment adviser that it wanted to put money in securities that were liquid and safe so it could access the funds when needed. DBS told Akamai that ARS were safe, liquid, and never failed even though the financial firm allegedly knew that they had done so before and, in fact, posed a higher level of risk than what it led Akamai to believe. Even in August 2007, when Deutsche Bank knew that the demand for ARS was going down and the risk of ARS auctions failing was rising, the investment adviser still allegedly did not notify Akamai that the market was changing.

When the ARS market did fall in 2008, Akamai was left with over $200 million in illiquid securities. Its securities fraud lawsuit also claims that even as DBS continued to claim that the securities were liquid and safe, resulting in Akamai increasing its ARS investments, the investment bank was decreasing its own exposure to the market.


Related Web Resources:
Deutsche Bank Loses Bid to Dismiss Control Person Claims by ARS Investor, BNA

Frozen in time, Boston.com, February 16, 2010

Akamai Technologies, Inc. and Akamai Securities Corp. v. Deutsche Bank AG (PDF)

Massachusetts’ Uniform Securities Act


More Blog Posts:
Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations, Institutional Investors Securities Blog, February 12, 2011

Merrill Lynch Doesn’t Have to Arbitrate ARS Claims by LSED, Says Appeals Court, Institutional Investors Securities Blog, December 22, 2010

Citigroup Global Markets to Pay Back $95.5M Over ARS Sold to LandAmerica Exchange Fund, Institutional Investors Securities Blog, November 11, 2010


Continue reading "Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed" »

February 12, 2011

Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations

Credit Suisse Securities (USA) LLC (CS) broker Eric Butler is permanently barred from future violations of securities laws. The U.S. District Court for the Southern District of New York granted the Securities and Exchange Commission's motion for the permanent injunction late last month.

Butler was convicted of criminal charges related to the unauthorized sale of more than $1 billion in subprime-related auction-rate securities to clients. A jury found him guilty of three counts of securities fraud and he was sentenced to five years in prison. Butler is appealing is sentence and conviction.

The SEC’s securities fraud's complaint in 2008 against Butler and co-defendant Credit Suisse broker Julian Tzolov accused the two men of engaging in a bait-and-switch approach that left unsuspecting foreign corporate customers with high-risk ARS, rather than the more conservative financial products they had given the defendants permission to buy. The collapse of the ARS market left clients with $800 million in illiquid products.

According to the court, the SEC made a motion for summary judgment against Butler on the grounds of collateral estoppel related to the criminal case against him. The commission also sought to permanently bar him from future violations. Meantime, Butler opposed the injunctive relief and summary judgment on the grounds that the criminal case did not “necessarily” decide the issues in this case, he was not given the fair and complete opportunity to litigate the criminal charges against him, and the SEC was not entitled to injunctive relief. The district court, however, determined that the criminal case did “actually” decide the issues the SEC wanted to establish by collateral estoppel and that given the circumstances “totality,” it was appropriate to permanently bar Butler from future SEC violations.

Related Web Resources:
Convicted CS Broker Who Sold Risky ARS Barred From Future Securities Law Violations, BNA, February 2, 2011

Ex-Credit Suisse Broker Butler Gets Five-Year Prison Sentence, Bloomberg, January 23, 2011

SEC v. Tzolov

Related Web Posts:
Judge Gives Lower Sentence to Former Credit Suisse Broker Convicted of Auction-Rate Securities Fraud, Stockbroker Fraud Blog, January 30, 2010

Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?”, Stockbroker Fraud Blog, August 21, 2009

Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble, Stockbroker Fraud Blog, July 29, 2009

Continue reading "Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations " »

December 22, 2010

Merrill Lynch Doesn’t Have to Arbitrate ARS Claims by LSED, Says Appeals Court

The U.S. Court of Appeals for the Second Circuit is affirming a district court’s ruling that Merrill Lynch & Co. Inc. does not need to arbitrate a disputes over auction-rate securities losses suffered by the state of Louisiana and the Louisiana Stadium and Exposition District (known collectively as LSED). The court noted that even assuming that LSED was entitled to arbitration, the district court reached the right conclusion when it found that LSED waived its right to arbitrate when it made known that it intended to resolve its ARS dispute through litigation and took numerous steps to make this happen.

Per the court, LSED, which owns the New Orleans Superdome, retained Merrill Lynch as the broker-dealer and underwriter to restructure its bond debt. After Hurricane Katrina damaged the Superdome, LSED also looked to Merrill about financing the repairs.

In 2006, LSED issued $240 million in municipal bonds as ARS. LSED’s auctions failed in 2008.

In 2009, LSED filed ARS lawsuits against three Merrill entities and bond insurer Financial Guaranty Insurance Co. One complaint was submitted to the U.S. District Court for the Eastern District of Louisiana, while another was filed in Louisiana state court. The Judicial Panel on Multidistrict Litigation would go on to centralize the cases, along with other ARS lawsuits, in the Southern District of New York. Meantime, the defendants sent a letter to LSED asserting that the plaintiff could not obtain relief on the basis of the factual allegations it submitted in its lawsuit.

Prior to filing its third amended complaint, LSED suggested that the case be resolved in arbitration. When the defendants did not respond, LSED moved to compel arbitration. It claimed that because Merrill subsidiary Merrill Lynch Pierce Fenner & Smith Inc. is a Financial Industry Regulatory Authority member, the broker-dealer is required to arbitrate customer disputes.

The district court denied LSED’s motion.

Related Web Resources:
Louisiana Stadium & Exposition District v. Merrill Lynch Pierce Fenner & Smith Inc. (PDF)

Louisiana Stadium and Exposition District


Continue reading "Merrill Lynch Doesn’t Have to Arbitrate ARS Claims by LSED, Says Appeals Court" »

November 11, 2010

Citigroup Global Markets to Pay Back $95.5M Over ARS Sold to LandAmerica Exchange Fund

A federal bankruptcy judge has approved a settlement involving Citigroup Global Markets Inc. agreeing to repay $95.5 million to clients who sustained auction-rate securities related-losses. The ARS were told by Citigroup to LandAmerica 1031 Exchange Services Inc. before the latter folded in 2008. The ARS had been valued at about $120 million. The repurchase rate that clients are getting is reportedly better than what the ARS can be sold for now.

Under the approved securities settlement, these creditors should recover a little over 50% of their financial losses. The distribution of the money should begin taking place in December.

LandAmerica 1031 Exchange Services Inc. and parent company LandAmerica Financial Group Inc. filed for Chapter 11 bankruptcy in November 2008. Over 250 clients had placed proceeds from investment property sales in the exchange. Their intention was to defer capital gains taxes while searching for other properties to purchase.

Unfortunately, because the exchange company invested some of the funds in ARS, when the market froze and LandAmerica filed for bankruptcy, the investors became unable to access their money. At the time of the bankruptcy, Landmark held $201.7 million in ARS. $30 million of the securities had sold.

Meantime, the US Securities and Exchange Commission has received complaints claiming that Citigroup engaged in misrepresentation and securities fraud related to the credit worthiness and liquidity of the securities.

Related Web Resources:

LandAmerica settlement for $95.5 million is proposed, WSLS, October 29, 2010

LandAmerica exchange fund settlement approved, Richmond Times-Dispatch, November 10, 2010

Stockbroker Fraud Blog

Continue reading "Citigroup Global Markets to Pay Back $95.5M Over ARS Sold to LandAmerica Exchange Fund " »

October 13, 2010

UBS AG Motion to Dismiss Class Securities Case Test’s US Supreme Court’s Ruling Regarding Extraterritorial Transactions

UBS AG has filed a motion to dismiss a class securities case against it. The move is putting the US Supreme Court’s recent ruling in Morrison v. National Australia Bank Ltd. to the test.

In this securities fraud case, four institutional investors—three of them foreign—are charging UBS and a number of individual defendants with violating Section 10(b) of the 1934 Securities Exchange Act. This is based on misstatements that were allegedly made regarding its auction rate securities-related and mortgage-related activities. They are seeking relief for all purchasers of UBS stock on all worldwide exchanges. Most of the statements in question were issued from the bank’s headquarters in Switzerland.

In 2008, the defendants asked the court to dismiss the allegations due to lack of subject matter jurisdiction. They cited the decision made in Morrison by the U.S. Court of Appeals for the Second Circuit, which had dismissed the action.

Now that the US Supreme Court issued its ruling in Morrison, with the justices concluding that Section 10(b) only applies to securities transactions on domestic exchanges and in other securities, the defendants are attempting to also have the securities case against them dismissed per Morrison’s “bright-line, location-of-the transaction rule.”

The defendants say that the plaintiffs have advised them that they will use the Supreme Court’s use of the word “listed” to end-run Morrison. Per the justices' decision, Section 10(b) applies to transactions involving securities that are “listed on an American stock exchange.” UBS shares can be found on the NYSE.

However, the defendants are contending that there isn't any support in the "the test of Section 10(B), its legislative history, or Morrison" for this type of unprecedented interpretation. They say that the word “listed," as it is used in Morrison is only applicable to two kinds of securities that can be purchased in the US—an unlisted security that trades over the counter in this country and a listed one that trades on a US exchange. The defendants claim that the plaintiffs are misreading the word “listed” in order to authorize international class action lawsuits based on securities purchases on a foreign market and that this "flies in the face of Morrison’s statements that Section 10 (b) doesn’t “regulate foreign securities exchanges.”

Related Web Resources:
Morrison v. National Australia Bank Ltd., Supreme Court (PDF)

1934 Securities Exchange Act

Continue reading "UBS AG Motion to Dismiss Class Securities Case Test’s US Supreme Court’s Ruling Regarding Extraterritorial Transactions" »

September 28, 2010

Jefferson County, Alabama Officials Want JP Morgan Chase & Other Wall Street Creditors to Accept Proposal that Would Eliminate Almost Half of Its $3.2 Billion Sewer Debt

Jefferson County, Alabama officials have presented a proposed settlement to Wall Street creditors that could get rid of almost half of its $3.2 billion sewer debt, create a $30 million relief fund for ratepayers that have a hard time paying their sewer bills, and limit sewer rate increases to approximately 2.5% annually. The county wants to solve its sewer bet crisis before the current County Commission leaves in November.

A significant number of investors have to agree to the proposal. JPMorgan Chase and Co. owns most of the county warrants. However, the other banks, including State Street Bank of Boston, Lloyds Bank of Scotland, the Bank of Nova Scotia in Canada, and Societe Generale of Paris would also have to approve it. Getting all of them to agree could prove challenging. Not all creditors may end up with half of what is owed. Some creditors want the settlement discussions to slow down while efforts are made to determine if more money can be obtained from the county.

“Our firm is handling a number of multi-million dollar Jefferson County-related securities claims and other ARS claims, which included claims for ‘consequential damages,” says Stockbroker Fraud Lawyer William Shepherd. “In these cases damages have been incurred by businesses and others when they denied access to their funds for months or years. Meanwhile, they had been told that the funds were placed into ‘money market’ type investments and were readily available on short notice. Some business completely failed because their cash flow was interrupted when the funds were suddenly tied up in these illiquid investments.”

In 1994, the county started a sewer restoration and rehabilitation program after individuals and the Cahaba River Society won their lawsuit demonstrating that the county had polluted rivers and creaks with untreated waste. In a consent decree in 1996, the county agreed to fix the sewer system. Initially estimated to cost $1 billion, it became a $3.2 billion project.

In 2002, a number of financial advisers, including bankers from JP Morgan, convinced county officials to replace traditional fixed-rate bonds with notes that came with floating interest rates, such as ARS. Following the credit crisis in 2008, and as borrowing costs rose, the complex financing scheme that the county was using failed. The county has been trying to figure out how to pay back the money it borrowed and is attempting to restructure its debt. In 2009, JP Morgan settled SEC charges related to an illegal payment scam that enabled the broker dealer to obtain business (involving swap agreement transactions and municipal bond offerings) in Jefferson County for a $75 million penalty. JP Morgan also agreed to forfeit $647 million in swap termination fees.

“Our securities claims are not against Jefferson County, but against the securities firms that sold our clients these securities,” says Shepherd. “Thus, the amounts not recovered by investors in the settlement are losses we are also seeking for our clients based on misrepresentations and omissions in the sales process.”

Related Web Resources:
Jefferson County officials proposing that creditors accept half of $3.2 billion sewer debt, AL.com, September 26, 2010

Jefferson County Sewer debt at $3.2 billion and growing, NBC13, September 7, 2010

Jefferson County, Alabama

Continue reading "Jefferson County, Alabama Officials Want JP Morgan Chase & Other Wall Street Creditors to Accept Proposal that Would Eliminate Almost Half of Its $3.2 Billion Sewer Debt" »

September 9, 2010

US Closed-End Funds Continue to Hold $26.4 Billion in Auction-Rate Preferred Shares, Says Fitch Ratings

Even though it’s been awhile the auction-rate securities market froze in 2008, credit-ratings firm Fitch Ratings’s new report says that US closed-end funds still hold $26.4 billion in auction-rate preferred shares (ARPS). Researchers say that even though this figure is a 57% drop from the $61.8 billion that was trapped in ARS in January 2008 they are still surprised by the current amount.

While ARPS holders have obtained liquidity through many redemptions, there is still a significant amount that is outstanding. Fitch says that 61% (250) of closed-end funds continue to be leveraged with auction-rate preferred shares. This is down from the 347 in January 2008. Fitch’s report is based on a review of 437 US closed-end funds’ publicly available financial statements.

Since the ARS market collapse in February 2008, closed-end funds have redeemed shares at par value via refinancing or by lowering the funds' leverage. Still others have offered to purchase the shares at below par value. 22% of the funds that Fitch reviewed has fully redeemed about $22.9 billion in ARPS, while 50% undertook partial redemptions of shares totaling $12.7 billion.

Recently, some of the funds’ common shareholders have alleged that fund boards redeemed shares at par while favoring ARPS holders and as a result were in breach of fiduciary duty. Refinancing has slowed as a result of the charges but Fitch says that the redemptions should start up again soon.

The funds must maintain a 200% minimum asset coverage when it comes to senior securities and at least 300% in regards to debt securities. For every $1 of preferred stock issued, a fund must have a minimum of $2 in assets. Fitch reports that along with the recovery of asset values, refinancings started up again during the second half of last year and the first half of this year. Senior, short-term financing has served as the most common type of alternate leverage.

If you are an institutional investor that was the victim of securities fraud, please contact our stockbroker fraud law firm immediately to request your free case evaluation.

Funds Hold Billions in 'Auction' Paper, Wall Street Journal, September 1, 2010

Fitch Ratings

September 8, 2010

Municipal Securities Rulemaking Board Can Expand Public Information on Municipal Variable Rate Demand Obligations and Auction Rate Securities, Says SEC

The US Securities and Exchange Commission has approved the Municipal Securities Rulemaking Board’s proposal to expand publicly available information about auction rate securities and municipal variable rate demand obligations. The SEC also approved letting the MSRB require that municipal securities dealers provide more information about these securities while allowing them to make this data available through its Electronic Municipal Market Access website. The disclosures will hopefully enhance transparency for investors that want to assess key information regarding the degree of dealer support, auction liquidity, and variable rate securities resales.

Once the approval is implemented, which could take nine months, the MSRB will gather liquidity facility documents for variable rate demand obligations from municipal securities dealers. Documents may include stand-by purchase agreements, letters of credit, and identifying information related to the provider of the liquidity facility that was available at the time of the interest rate. Dealers will have to report ARS bidding data and documents defining auction procedures and interest rate setting mechanisms to the MSRB. All documents and information from the dealers will be made accessible through the EMMA Web site. EMMA currently offers free public access to interest rate information for ARS and VRDOs.

MSRB regulates banks and securities firms that trade, underwrite, and sell municipal securities. It also gathers and gives out market information and is committed to ensuring the key municipal market data is available and free to the public. This data allows retail investors to evaluate the risks and benefits. MSRB is a self-regulatory organization subject to Securities and Exchange Commission oversight.

Related Web Resources:
MSRB Receives SEC Approval to Create Additional Transparency for Variable Rate Securities, MSRB, August 26, 2010

Municipal Market Rulemaking Board Asks SEC To Approve Expansion, Wall Street Journal, August 27, 2010

Municipal Securities Rulemaking Board

Electronic Municipal Market Access

Stockbroker-fraud.com

Continue reading "Municipal Securities Rulemaking Board Can Expand Public Information on Municipal Variable Rate Demand Obligations and Auction Rate Securities, Says SEC" »

September 1, 2010

Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute

A Financial Industry Regulatory Authority panel says that Raymond James and financial advisor Larry Milton must pay Sherese and Rex Glendenning $925,000 over an auction-rate securities dispute. This is the third time this summer that Raymond James Financial Inc. (NYSE: RFJ) subsidiaries have been involved in an ARS dispute that was decided in FINRA arbitration. Since July 1, independent broker-dealer Raymond James Financial Services Inc. and brokerage firm Raymond James & Associates have been ordered to repurchase $3.5 million in ARS from clients.

The Glendennings set up their account with Raymond James in January 2008 before the market meltdown. Milton placed the couple’s $1.4 million in an ARS that contained sewer revenue bonds while failing to tell them about the risk involved.

The couple contends that Milton’s behavior wrongly gave them the impression that their investment was highly liquid and could be easily sold. However, Raymond James turned down their request to buy the ARS back at full value.

According to the Glendennings’ securities fraud attorney, the timing of the purchase was key to winning the award. The securities that they bought came up for auction for the first time thirty five days after they made the purchase. The auction failed and the couple were never able “ to go to auction.”

At the time of the ARS market crash in February 2008, Raymond James Financial clients held $1.9 billion in auction rate debt—now down to $600 million. To date, none of the securities regulators have sued the firm over ARS sales. Other financial firms, including Oppenheimer & Co. Inc. and Charles Schwab & Co. haven’t been as lucky.

Related Web Resources:
Raymond James pays more auction rate claims, Investment News, August 26, 2010

FINRA rules against Raymond James in auction rate securities case, Tampa Bay Business Journal, August 26, 2010

Stockbroker-Fraud Blog

Continue reading "Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute" »

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