Product Liability Attorney Blog

Massachusetts regulators filed civil fraud charges against UBS Financial Services on June 26 for allegedly claiming that risky auction-rate securities were as safe as cash.

The 101-page lawsuit filed by the Massachusetts Securities Division claims that the financial services arm of the company knowingly let brokers represent auction-rate securities as safe to investors so that the company could reduce its stake in the instruments.

The complaint asserts that even though UBS insiders were calling the program an “albatross” and knew it was likely to collapse early in 2008, it continued selling the auction-rate securities to individual investors.

The state wants UBS to return all of the funds to Massachusetts investors and to pay a fine.

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Until this past May, auction-rate securities were classified as “Cash alternatives/Municipal securities” on the customer statements issued by UBS Financial Services.

And well into March, Merrill Lynch customers who checked their accounts online found their auction-rate securities investments listed under “Other Cash.”

The classifications were disclosed in a recent Boston Globe article written by reporter Beth Healy titled: “Brokerage practices draw criticism – Clients say they were misled about risks of auction-rate debt.”

The recent revelations further support the claim that investors were told auction-rate securities were “same as cash.” For many of the investors, that claim was the very reason they chose auction-rate debt. The investors were looking for a safe, short-term place to park their money before drawing on it for expenses such as college tuition, house purchases, impending retirement and even daily living expenses.

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The number of U.S. deaths involving an allergic reaction to the blood thinner heparin has risen to 149.

On Monday, the Food and Drug Administration posted the revised death toll on its web site. In April, the number of deaths in people who had allergic reactions was 81. The latest figures include seven deaths in April and five in May.

There were a total of 246 reports of deaths in the U.S. of people who had received heparin. Of that number, 149 suffered allergic reactions.

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Americans aren’t the only ones suffering from strokes, heart attacks and kidney failure linked to the drug Trasylol. Last Sunday, the United Kingdom’s Daily Times contained a first-person account of one man’s harrowing experience after receiving Bayer’s anti-bleeding drug.

In “The heart surgery time bomb: One man’s brush with death due to post-op drug,” Eric Clark writes that one morning, five months after major heart surgery:

“I intend to swing myself out of bed. Nothing happens, I can’t move. No worries – I obviously pulled something in the gym two days ago. I try again, and this time my grunt wakes my wife. ‘I can’t move,’ I say.

My voice sounds strange – I’m slurring my words. Now I start to panic – I am completely paralyzed. ‘Oh my God, darling, I think you’ve had a stroke.’”

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Holders of auction-rate securities are stuck between the proverbial rock and hard place. The predicament of 47-year-old Cecilia Walsh is a prime example.

Walsh was profiled by The Wall Street Journal columnist Liz Rappaport in the article, “Holders of Auction-Rate Debt Have Choices, but Few Solutions.”

Walsh received $375,000 in a divorce settlement and invested the entire amount in auction-rate securities last December. By February, the market had frozen and Walsh couldn’t get to the money she needed for her day-to-day expenses.

UBS AG, Walsh’s broker, gave her a margin loan. But the broker later marked down the value of her auction-rate securities and forced her to repay a portion of her loan. The auction-rate securities underwent further write downs. In early June, Walsh received a margin-call notice after her investments were valued at $187,500, a whopping 50 percent of the original value.

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FOR IMMEDIATE RELEASE
FRIDAY, JUNE 13, 2008
CONTACT: JOSEPH P. DANIS
MICHAEL J. FLANNERY
COREY D. SULLIVAN
Phone: 1-800-721-2519

NEWS RELEASE

June 13, 2008

Carey & Danis LLC Announces Auction Rate Securities Class Action Lawsuit Filed Against Wells Fargo & Co. (NYSE: WFC).

St. Louis, MO – The law firm of Carey & Danis LLC (www.careydanis.com) has filed a class action lawsuit on behalf of persons who purchased auction rate securities from Wells Fargo & Co. (NYSE: WFC) and Wells Fargo Investments, LLC between June 11, 2003 and Feb. 13, 2008 and who continued to hold the securities as of Feb. 13, 2008.

The class action lawsuit, Jungbluth v. Wells Fargo & Co. et al., Case 2:08-CV-00509-AEG, is pending in the U.S. District Court for the Eastern District of Wisconsin. The suit alleges that Wells Fargo & Co. and its subsidiary, Wells Fargo Investments, LLC, violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by deceiving investors about the investment characteristics of auction rate securities and the auction market in which the securities are traded.

Auction rate securities are municipal or corporate debt securities or preferred stocks that pay interest at rates set through periodic auctions. The instruments typically have long-term maturity dates or no maturity date.

The suit filed on June 11 claims that, pursuant to uniform sales materials and top-down management directives, Wells Fargo offered and sold auction rate securities to the public as highly liquid cash-management instruments and as suitable alternatives to money market mutual funds. On Feb. 13, 2008, all of the major broker-dealers, including Wells Fargo, withdrew their support for the auctions. The suit claims that, as a result, investors have been unable to liquidate their auction rate securities.

The lawsuit alleges that Wells Fargo failed to disclose the following material facts about the auction rate securities it sold to the class:

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Documents reviewed by the Boston Globe reveal that UBS Financial Services knew of the looming collapse of the auction-rate securities market but it only tipped off a few select investors.

In the article “Wall Street Firm told only some about risk,” reporter Beth Healey writes that at least three months before the auction-rate securities market crashed in February, UBS warned large investment bankers of the impending problem.

And yet, UBS brokers continued to sell the instruments to individuals, businesses and small towns. Those investors were allegedly told the investments were “as safe as cash.”

Healey writes:

“It is a conflict that could mean UBS bears more responsibility for its role in the auction-rate securities debacle than it has acknowledged so far....Securities lawyers said evidence that one side of the firm knew about the impending market collapse without telling the other could pose legal trouble for UBS.”

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Banks and brokerages that sold auction-rate securities are now thwarting attempts by investors to unload the instruments, Bloomberg News reports.

In “Banks Say Auction-Rate Investors Can’t Have Money,” reporter Darrell Preston writes that some investors who are holding the frozen auction-rate securities have found buyers on the secondary market. The buyers are willing to purchase the instruments at a discount. But when investors try to have the securities transferred, the banks and brokerages are balking.

That’s what happened to Franklin Biddar, 65. He agreed to sell $100,000 worth of auction-rate securities for an 11 percent loss. When he asked Bank of America to make the transfer, it refused to release the bonds.

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An international team of researchers led by the Massachusetts Institute of Technology has explained why tainted heparin is so deadly.

Heparin is a blood thinner produced from pig intestines that is often used during kidney dialysis or heart surgery. Recently, 81 patients died after receiving heparin in which chondroitin sulfate was substituted for the active ingredient derived from pig intestines

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In an op-ed piece in today’s issue of the News & Observer, pharmacist David Work writes that the recent illnesses and deaths linked to contaminated heparin exposes weaknesses in the drug manufacturing process in the United States.

Work, a retired executive director of the North Carolina Board of Pharmacy, notes that in today’s global economy, the Food and Drug Administration has neither the funds nor support to ensure that the nation’s prescription drug supply is safe.

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