A new wave of lawsuits and arbitrations are being filed on behalf of investors who purchased auction rate securities but have not been eligible to participate in redemptions offered by big banks as a result of regulatory settlements. See article entitled “‘Stranded’ ARS investors sue for a share of pie” by Jed Horowitz in the May 24, 2009 edition of InvestmentNews. These stranded investors purchased auction rate securities from “downstream” broker-dealers who sold but did not underwrite auction rate securities. The firms include Raymond James Financial Inc., Oppenheimer Holdings Inc., E*Trade Financial Corp., and TD Ameritrade Holding Corp., which were among the biggest distributors of auction rate securities, according to the article.
These downstream firms generally say they do not have the capital to repurchase the auction rate securities at par, so the suits are targeting the larger firms that conducted the auctions and marketed the auction rate securities as safe. Some downstream brokers, however, have been negotiating settlements. The Financial Industry Regulatory Authority (FINRA) has negotiated reimbursement schedules and fines with nine of its members, according to the article, including Janney-Montgomery Scott LLC, M&I Financial Advisors, Inc., M&T Securities Inc., and NatCity Investments Inc. Raymond James informed its customers that it did not have the capital to repurchase auction rate securities, but indicated, somewhat vaguely, that it is “trying to work out solutions,” according to the article.
One of the targets of the new wave of suits by “left out” investors is UBS Securities LLC, the New York-based subsidiary of Swiss giant UBS AG. The allegations focus on manipulation of auction prices by UBS traders, according to the article.
Other individual investors, who purchased auction rate securities through big banks (like UBS) but were left out of the regulatory settlement because they transferred their auction rate securities to another firm, are filing arbitration claims ? some in large groups for cost and other advantages.
In addition, an increasing number of larger institutional investors, who were carved out of the redemption settlements, are filing lawsuits against the big banks to protect their shareholders’ interests.
Of the $330 billion in auction rate securities that were outstanding when the auctions began collapsing in February 2008 after the big banks stopped supporting them $160 billion remain outstanding. The securities that were sold in the marketplace as cash equivalent investment became completely illiquid. J. Boyd Page, senior partner of the Atlanta law firm of Page Perry, says “Anyone who invested in auction rate securities potentially has a lawsuit given the misrepresentations that were made across the board to investors.”
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 investors in auction-rate securities cases. For further information, please contact us.