More Auction-Rate Securities Settlements Ahead?


Today New York Attorney General Andrew Cuomo urged JP Morgan Chase, Morgan Stanley and Wachovia Securities to take immediate steps to settle their auction-rate securities problems. According to reports, Cuomo’s office has sent a letter to each of these firms strongly suggesting that they enter into settlements with regulators resolving their auction-rate securities problems on terms similar to those previously agreed to by Citigroup and UBS.

Under such proposal, it appears that regulators are seeking to compel JP Morgan, Wachovia and Morgan Stanley to buy-back securities held by individual customers, charities and small businesses, reimburse those clients for any damages which they sustained in selling auction-rate securities, use best efforts to assist larger institutional customers in disposing of their auction-rate securities and pay fines.

Both Morgan Stanley and JP Morgan Chase stated that they were cooperating with the ongoing probes into the auction-rate securities fiasco but declined further comment. Wachovia Securities, which had its home office raided by a state auction-rate securities task force several weeks ago, stated it was meeting with regulators today. Missouri Secretary of State also released a statement today indicating that progress had been made with Wachovia to address the $9.5 billion of auction-rate securities sold by the firm.

Many major brokerage firms have been accused of affirmatively misrepresenting auction-rate securities as safe, liquid, short-term investments that were similar to money market instruments with interest rates that would reset at periodic auctions based on the bids submitted by market participants. Those firms accused have included UBS, Bear, Stearns, Citigroup, Lehman Brothers, Merrill Lynch, RBC Dain Rauscher Inc., A.G. Edwards & Sons, Inc., Piper Jaffray , SunTrust Capital Markets , and Bank of America Securities as well as Morgan Stanley, JP Morgan and Wachovia Securities.

In addition to their alleged misrepresentations, regulators and clients are pursuing claims based upon these firms’ omissions to disclose that the firms knew the auction- rate securities market was becoming increasingly risky, that there were many negative developments in the auction-rate securities market, that brokerage firms’ top managements were concerned about mounting pressures on the firms’ holdings of auction-rate securities, that they were considering (or in the process of) unloading such holdings on unsuspecting buyers; and that they planned to let the auctions fail leaving thousands of customers “holding the bag.”

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.