Attorneys at SNSFE are investigating courses of action for investors in claims involving fraud and breaches of fiduciary duty for losses sustained in the auction-rate securities (ARS) market collapses. Losses may be recoverable.
Additionally, we are fielding many inquiries by corporate investors holding ARS. They, and thousands of others, were mislead into purchasing this problematic investment and want to know the legal course of action they should follow.
While securities regulators have sought to hold investment firms responsible and several settlements have been crafted, the settlements are complex, and may exclude several institutional purchasers. Furthermore, settlements have not been reached with many regional firms who sold this investment and who may still be liable under the securities laws.
In addition, class action lawsuits have been filed against major brokerage firms for fraudulent dealings in auction-rate securities. Generally, we do not recommend participation in any of these class actions as settlements of these cases are likely to be disadvantageous to the class participants. Investors are far more likely to obtain a faster, better return on their cases through the individual arbitration process than through a class action. Investors should seek counsel to discuss their matter before proceeding with any action.
For more information, contact Jim Eccleston, head of SNSFE's securities department, at JEccleston@snsfe-law.com or 312.621.4400. Please visit our websites at snsfe-law.com and financialcounsel.com.
THE FOLLOWING IS AN EXCERPT OF THE SEC'S FINDINGS AGAINST BROKERAGE FIRMS INVOLVED IN THE AUCTION-RATE SECURITIES MARKET COLLAPSE:
"The SEC order finds that, between January 2003 and June 2004, each firm engaged in one or more practices that were not adequately disclosed to investors, which constituted violations of the securities laws. The violative conduct included:
- intervening in auctions by bidding for a firm's proprietary account or asking customers to make or change orders in order to prevent failed auctions, to set a "market" rate, or to prevent all-hold auctions;
- submitting or changing orders, or allowing customers to submit or change orders, after auction deadlines;
- not requiring certain customers to purchase partially-filled orders even though the orders were supposed to be irrevocable;
- having an express or tacit understanding to provide certain customers with higher returns than the auction clearing rate; and
- providing certain customers with information that gave them an advantage over other customers in determining what rate to bid.
Some of these practices had the effect of favoring certain customers over others, and some had the effect of favoring the issuer of the securities over customers, or vice versa. In addition, since the firms were under no obligation to guarantee against a failed auction, investors may not have been aware of the liquidity and credit risks associated with certain securities. By engaging in these practices, the firms violated Section 17(a)(2) of the Securities Act of 1933, which prohibits material misstatements and omissions in any offer or sale of securities.
The SEC order (1) censures each firm; (2) requires each firm to cease and desist from committing or causing any violations and future violations of Section 17(a)(2) of the Securities Act; (3) requires each firm to pay a penalty; (4) requires each firm to provide certain disclosures of its material and current auction practices and procedures; and (5) requires each firm, not later than six months after the date of the order, to have its CEO or general counsel certify that it has implemented procedures that are reasonably designed to prevent and detect violations in the auction rate securities area.
The order requires the respondents to pay the following penalties based upon their relative market share and conduct: Bear, Stearns & Co., Inc., Citigroup Global Markets, Inc., Goldman Sachs & Co., J.P. Morgan Securities, Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated/ Morgan Stanley DW Inc., and RBC Dain Rauscher Inc. - $1,500,000 each; and A.G. Edwards & Sons, Inc., Morgan Keegan & Company, Inc., Piper Jaffray & Co., SunTrust Capital Markets Inc., and Wachovia Capital Markets, LLC - $125,000 each. Banc of America Securities LLC is required to pay $750,000 rather than $1,500,000 based on the quality of its self-monitoring capabilities in the auction rate securities area.”
Source: SEC Press Release
Relevant posts:
Morgan Keegan's Abusive Sales Of Auction Rate Securities Prompt SEC Complaint
Special Alert: UBS Agrees To A Buyback To Settle ARS Claims On The Heels Of Citigroup And Merrill Lynch SettlementsSpecial Alert To Citigroup Retail Investors Holding Illiquid Auction-Rate Securities
More Bad News For Auction-Rate Securities Market
J.P. Morgan Analyst Paints Bleak Picture For Investors In Student Loan Auction-Rate Securities
Investor Angst, Regulatory Probes And Litigation Intensify Over Auction-Rate Securities
ARS Woes Continue As Companies Join In Lawsuits To Recover Damages And Liquidate Securities
Auction-Rate Securities Present A "Hotel California" Nightmare For Investors
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Shaheen, Novoselsky, Staat, Filipowski & Eccleston, P.C. |20 N. Wacker Drive, Suite 2900 | Chicago, IL 60606-9719 | Tel 312.621.4400 | Fax 312.621.0268
FinancialCounsel.com, hosted by James J. Eccleston, is the companion website to this blog. It contains complimentary material of general interest to investors and financial services professionals. Investors will find material on securities arbitration to recover investment losses; industry and financial markets intelligence; and strategies for estate planning. Professionals have access to material on broker/adviser registration, regulation, compliance and disciplinary proceedings; industry and financial markets intelligence; strategies for estate planning; and broker/adviser employment litigation and injunctions, including defamation and non-competition/solicitation issues. 
James J. Eccleston heads the securities group at Shaheen, Novoselsky, Staat, Filipowski & Eccleston, P.C., a business law firm dedicated to closely-held business owners, senior executives and high net worth individuals. With three core practice groups - securities, general litigation, and corporate / transactional - and many subspecialties, SNSFE provides clients a full spectrum of legal services, from start-up to succession planning. Visit snsfe-law.com or call 312.621.4400 for more information. 
