Many Auction-Rate Securities Investors May Be Left to Fend for Themselves


While regulators have announced tentative settlements with major Wall Street firms (Merrill Lynch, UBS, JP Morgan, Goldman Sachs, Morgan Stanley, Wachovia, Citigroup, and Deutsche Bank) that underwrote auction-rate securities, these settlements have not addressed the situation of thousands of investors that purchased auction-rate securities through smaller brokerage firms. Most of these smaller brokerage firms were primarily “distributors” of auction-rate securities as opposed to underwriters of the securities. They have not yet settled with regulators and have taken no apparent action to address their customers’ auction-rate securities complaints. Such firms include Oppenheimer, Fidelity Investments, Northern Trust, H&R Block Financial Advisors, SunTrust, Comerica, Stifel Nicolaus, Raymond James, and Wells Fargo.

Contrary to trying to resolve problems with their customers, such firms have denied accountability claiming that they were unaware of problems in the auction-rate securities market and have done nothing wrong. Recently, the Regional Bond Dealers Association (“RDBA”), an organization that represents many regional securities firms and banks, wrote the SEC, the North American Securities Administrators Association, and the Attorney General of New York, contending that the underwriters of auction-rate securities should be held accountable to all customers who purchased auction-rate securities and proclaiming that the “distributing” firms were victims of the underwriters’ deceptions. The RBDA claimed that “the violations at the heart of the ARS (auction-rate securities) market downturn stem not from problems with the distributing firms at the ‘point of sale’ but in the relatively opaque auction process.” The RBDA went on to say “Any settlement that does not apply the same lead manager obligations to both those firms’ direct customers as well as those investors who bought lead managers’ ARS (auction-rate securities) through other dealers would be unfair and would leave thousands of investors without a resolution.” The RBDA concluded that it would not be fair to hold distributing firms accountable because “Distributing firms were kept just as uninformed as investors by large lead managers as the ARS (auction-rate securities) market deteriorated last fall.”

The RBDA’s letter presents an interesting conflict between distributing firms and the major Wall Street underwriters and this conflict may well inure to the advantage of investors who sustained damages in auction-rate securities purchased from so-called “distributing” firms. It would appear that, in many instances, investors would have legitimate claims against both the “distributing” firm and the “underwriting” firm(s) with each blaming the other for the problem.

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 individual investors in auction-rate securities cases. For further information, please contact us.