Auction-Rate Securities Trigger Criminal Probe
Federal prosecutors are investigating whether two former Credit Suisse Group brokers lied to clients about their investments into auction-rate securities, the Wall Street Journal reports.
From November 2003 to September 2007, Eric Butler and Julian Tzolov worked as brokers for the second-biggest bank in Switzerland. According to the article, “Auction-Rate Probe Grows Over Clarity From Brokers,” by reporters Amir Efrati, Liz Rappaport and Randall Smith, the two brokers were suspended and then resigned after clients complained they were misled about the nature of the auction-rate securities they bought. They subsequently moved over to Morgan Stanley.
Credit Suisse later shelled out over $10 million to the brokers’ unhappy investors. According to Bloomberg News, Credit Suisse paid one customer $7.03 million to settle a dispute. In another case, the bank paid $3.6 million to an investor.
According to news reports, Credit Suisse is cooperating with a criminal investigation led by the Justice Department and U.S. Attorney’s office for New York’s Eastern District. It is believed to be the first criminal probe to arise out of the auction-rate securities debacle.
On July 7, Morgan Stanley fired Butler and Tzolov, a company spokeswoman said.
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.
In mid-February, the auctions for the investment instruments failed. That meant investors were unable to sell their securities. To this day, auction-rate securities investors find themselves owning frozen assets.
Carey & Danis has filed class action lawsuits on behalf of persons who purchased auction-rate securities from UBS Financial Services and Wells Fargo & Co.
Auction-rate securities investors who wish to discuss their rights against any broker-dealer may contact Carey & Danis toll-free at 800-721-2519 or fill out our online contact form.
