Ashland Inc., the maker of Valvoline motor oil, has filed sit against Oppenheimer & Co. for selling the company $194 million of illiquid auction-rate securities after lying about the nature of auction-rate securities and the stability of the auction-rate securities market. So reported Morgan Bettax in an April 17, 2009 article entitled “Valvoline Maker Lodges ARS Suit Against Oppenheimer” posted on Law360.com.
The complaint, filed in the U. S. District Court for the Eastern District of Kentucky, Civil Action No. 5:09-cv-00135-JBC, states that Oppenheimer made false and misleading statements aimed at inducing Ashland to purchase auction-rate securities from Oppenheimer, and convincing Ashland to hold and to continue to purchase those securities at a time when Oppenheimer knew the auction-rate securities market was collapsing. Ashland alleged it had engaged Oppenheimer to provide investment and cash management services to the Company. Oppenheimer sold the auction-rate securities as safe, liquid instruments that were suitable for Ashland’s conservative investment policies. Oppenheimer further represented that Oppenheimer-brokered auction-rate securities were always in demand by customers because they were based on only the highest quality assets and that Ashland would never be left holding illiquid auction-rate securities, according to the Complaint.
In addition, the Complaint alleges that in late 2007, Oppenheimer advised Ashland to shift its investments away from tax-exempt municipal auction-rate securities in favor of Student Loan Auction-Rate Securities. Auction-rate securities were described recently on Forbes.com as “really, really bad investments.” That is particularly true of auction-rate securities backed by student loans. While some municipalities and closed-end fund issuers have redeemed or announced plans to redeem auction-rate securities they issued, holders of auction-rate securities backed by student loans are having no such luck.
A key problem with student loan-backed auction-rate securities is that the authorities that issued student loan auction-rate securities have little or no ability to raise additional funds to redeem them. In addition, because of a high rate of defaulted student loans and a formula designed to ensure that borrowers do not pay more interest on their debt than they receive from student-loan clients, the more than $9 billion in auction-rate bonds issued by student loan agencies have left investors holding long term bond bonds that pay little or no interest.
J. Boyd Page, a senior partner of Page Perry, observed that, “I know that many investors are reluctant to realize losses and hope that things will get better, but these investors also need to appreciate that things could get a lot worse. Furthermore, investors who have viable legal claims risk losing those claims if they wait too long.” Investors who still continue to hold auction-rate securities should carefully weigh the pros and cons of disposing of their auction-rate securities in the secondary market for less than face value, and seeking legal redress for the difference in value.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in auction-rate securities cases. For further information, please contact us.