A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered UBS AG to pay $80.8 million to a Maryland cellphone marketer for lost profits when its cash was frozen in auction-rate securities in early 2008, according to an August 4, 2010 Wall Street Journal article by Randall Smith, “UBS to Pay $80 Million in Auction-Rate Case.”
The arbitration award shows Wall Street’s misconduct that led to the market meltdown is still impacting businesses more than three years after the crisis first struck the credit markets in mid-2007.
The $330 billion market for auction-rate securities froze in February 2008, when Wall Street dealers stopped supporting the periodic auctions that set the interest rates on long-term debt that Wall Street misrepresented as being safe, short-term “cash-equivalent” investments.
At UBS, 40,000 customers with over $35 billion invested in auction rate securities were suddenly denied access to their money, according to the article, which referenced a Securities and Exchange Commission complaint filed in late 2008.
The cellphone company recovered 73% of the $110 million the company claimed. “Any company that had its war chest in auction-rate securities was potentially going to have catastrophic consequences,” the company’s attorney was quoted as saying. “Liquidity crises can kill companies.”
“The problems with the auction rate securities are by no means limited to UBS,” says J. Boyd Page of Page Perry in Atlanta, noting that approximately 15 investment banks and brokerage firms have entered into settlements with regulators since the market collapse. Page Perry represents a number of investors who are still holding illiquid auction rate securities, along with others who have gone ahead and taken a loss on the secondary market.
“Now that the regulatory settlements have largely concluded, many investors have learned that they are ineligible for those settlements, either because of the size of their investment or the date when their securities were purchased.” Furthermore, says Page, “there are several large broker-dealers who were either not targeted by regulators or have not yet been party to the settlements. ” Because it has been two years since the collapse of the market, investors who are still holding illiquid auction rate securities need to be concerned about the statute of limitations. “If you still do not have liquidity at this point,” says Page, “you may never get it unless you take legal action. Under the laws of some states, the time for doing that is about to expire, and it will eventually run out in other states as well. If you are thinking about consulting a lawyer, you need to do it now before it is too late.” Page Perry, is based in Atlanta but represents investors in securities arbitrations and lawsuits all over the country