Bad News for Brokerage Firms that Sold Auction Rate Securities


Brokerage firms who sold auction rate securities had to feel a jolt if they read Chad Bray’s recent article in the Wall Street Journal (“Broker Convicted in Auction-Rate Case”). A jury convicted a former Credit Suisse broker of a crime ? subject to 45 years in prison ? after less than a day of deliberation. It’s true that the government claimed that he and another broker changed the names of securities on communications with clients to conceal the fact that the securities were not backed by federally guaranteed student loans, which is not something every broker who sold auction rate securities did. Nevertheless, the jury found the broker “guilty of securities fraud and two counts of conspiracy,” according to the article, and “securities fraud” is a charge widely associated with sales practices related to auction rate securities. In the words of the U.S. Attorney who prosecuted the case: “The defendant’s fraudulent misrepresentations saddled investors with unknown risks they did not bargain for’. [an allegation found in most civil lawsuits involving auction rate securities] This case shows that those who engage in such schemes will be held to account for their criminal activity.”

The arm of the law is long indeed. The convicted broker’s cohort was arrested in Spain and later became a key witness for the prosecution, testifying that he and the defendant “misrepresented to clients the types of securities in which they were investing in order to generate higher commissions from clients and because they weren’t always able to get an allocation of student-loan backed auction rate securities,” according to the article. If they had, though, they might still be in the same boat, because student loan auction rate securities or SLARS are considered to be the most toxic of auction rate securities.

Brokers who sold auction rate securities should do everything they can to assist their clients in recovering their losses in auction rate securities. It is not only the right thing to do, but it might keep the prosecutor away.

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.