In a recent SEC filing, SunTrust Banks announced that it was in talks with regulators in an effort to settle regulatory investigations regarding the firm’s auction-rate securities activities. Regulators have been investigating SunTrust regarding its sales practices in selling auction-rate securities and the adequacy of disclosures it made concerning these instruments.
In general, regulators have contended that SunTrust, and other firms, sold auction-rate securities by 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.
In addition to alleged misrepresentations, regulators and clients are pursuing claims based upon SunTrust’s omissions to disclose that it 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’ inventories 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.”
It is anticipated that a settlement with the regulators would require SunTrust to repurchase approximately $500 million of auction-rate securities sold to clients. Any settlement is expected to follow guidelines established by the regulators in earlier settlements. Such guidelines have generally required firms to repurchase auction-rate securities sold to small investors (defined as individuals, charities and small businesses having $10 million or less in investments with the firm), reimburse such investors for losses they sustained if they sold their auction-rate securities, and use their best efforts to assist larger investors in liquidating their auction-rate securities. SunTrust would also probably pay a fine in connection with any settlement.
Recently, state regulators have announced eight settlements, in principle, with major Wall Street firms arising out of their misconduct in marketing and selling auction-rate securities. Specifically, regulators announced settlements, in principle, with UBS, Citigroup, Merrill Lynch, Morgan Stanley, Wachovia, Goldman Sachs, JP Morgan and Deutsche Bank.
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.