Today, Morgan Stanley and JP Morgan announced that they were following the precedent set by UBS and Citigroup in order to settle part of their auction-rate securities problems. The tentative agreements which JP Morgan and Morgan Stanley have entered into with regulators which will require that the firms will repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having assets of $10 million or less), reimburse such retail customers for any losses that they sustained in selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay regulatory fines. The tentative agreements also provide that the firms would help their larger institutional clients (those with more than $10 million in assets) sell their holdings.
Pursuant to the settlement, JP Morgan is expected to repurchase approximately $3 billion of auction-rate securities from its retail clients and pay $25 million in civil penalties. The firm is expected to fund the settlement by November 12, 2008.
Morgan Stanley, on the other hand, is expected to buy back approximately $4.5 billion of auction-rate securities sold to retail clients and pay $35 million in fines. Morgan Stanley has agreed that it will effect these transactions by December 11, 2008.
Unfortunately, as in many of the previous settlements, no real mechanism has been established to deal with larger institutional investors who hold large amounts of auction-rate securities or who have sustained significant damages as a result of the same. While each of the settling Wall Street firms has agreed to try to “help” such institutional investors, these investors are essentially being left to fend for themselves.
Of course, the “devil is always in the details,” and the precise terms of the settlement won’t be known until formal agreements are signed. Investors affected by these settlements should monitor the process and carefully analyze the formal agreements. The ultimate settlement document needs to be carefully reviewed to determine any limitations or restrictions put on the firms’ obligations. Moreover, it is important to note that the agreement does not resolve all claims by investors who purchased auction-rate securities. Investors are encouraged to carefully review any documents that they receive from Morgan Stanley and/or JP Morgan in connection with the proposed settlement and to carefully evaluate what their options are. Investors are specifically cautioned to be careful about the execution of any release that would generally release the firms from all claims which the investor may have against the firms.
The state securities regulators’ auction-rate securities task force continues to investigate other firms that sold auction-rate securities and additional settlements are expected. Among the other firms being investigated for inappropriate sales of auction-rate securities are the following: Goldman Sachs, Bank of America, RBC, Wachovia/A.G. Edwards, Lehman Brothers, Oppenheimer, and Credit Suisse.
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.