Auction Rate Securities Class Action Dismissed When Brokerage Firm Buys Back Holdings of Investor


Northern Trust Securities, Inc. has succeeded in obtaining the dismissal of a class action filed against it by Aimis Art Corp. arising out of the sale of auction rate securities, reported Liz McKenzie in her Law360 article entitled “Northern Trust Escapes Investor’s ARS Action.” Aimis filed the lawsuit on September 17, 2008. On September 29, 2008, Northern Trust announced a program through which it would repurchase certain of the auction rate securities. In December 2008, Aimis received the par value of its investment in the auction rate securities. The case was pending in the U. S. District Court for the Southern District of New York.

The reasons for the dismissal are somewhat technical and have nothing to do with the underlying claim that Northern Trust misled Aimis and others by misrepresenting that the auction rate securities were “as good as cash and could be received in a matter of day.” The court dismissed the case because it concluded that Aimis had failed to allege recoverable damages. The court’s conclusion was based on the fact that Northern Trust repurchased the auction rate securities it sold to Aimis at par value. In its Decision and Order, the court stated that, while Aimis alleged “benefit-of-the-bargain” damages based on its inability to earn the expected interest on the auction rate securities and its inability to purchase art during the period the securities were illiquid, such damages were not recoverable where, as here, the Aimis had rescinded the transaction and received par value. The aim of benefit-of-the-bargain damages it to put an injured plaintiff in the position he would have been in had his expectancy ensued. As the court explained, it is a matter of law that “a plaintiff cannot both rescind the transaction and ask for the benefit of the bargain rescinded.”

The court further decided that Aimis had no standing to seek recovery on behalf of class members who had not received the par value settlement because it had not suffered the same injury.

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.