Product Liability Attorney Blog

Regulators looking into the auction-rate securities debacle have widened their probe to include nearly 40 brokerages, the Los Angeles Times reports.

Journalist Walter Hamilton writes that investigators with the Financial Industry Regulatory Authority launched on-site examinations this week at brokerages to determine whether the middlemen knew about the problems in the market and warned customers about the risks.

Brokerages such as Charles Schwab Corp., Fidelity Investments and E*Trade Financial Corp. have also received subpoenas from New York Attorney General Andrew Cuomo, Bloomberg News reports.

The news comes on the heels of the announcement that eight Wall Street banks have reached legal settlements with state and federal regulators over claims they misled investors about the safety of the instruments.

So far, Merrill Lynch & Co., Goldman Sachs Group, Deutsche Bank, Citigroup Inc., UBS Financial Services, Morgan Stanley, JPMorgan Chase & Co., and Wachovia Corp. have agreed to buy back frozen auction-rate securities from investors.

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FOR IMMEDIATE RELEASE
WEDNESDAY, AUGUST 13, 2008
CONTACT: JOSEPH P. DANIS
COREY D. SULLIVAN
Phone: 1-800-721-2519

NEWS RELEASE

August 13, 2008

St. Louis, MO – The law firm of Carey & Danis LLC has filed a class action lawsuit on behalf of persons who purchased auction rate securities from Stifel Financial Corp. (NYSE: SF) and Stifel, Nicolaus & Company, Inc. between June 11, 2003 and Feb. 13, 2008 and who continued to hold the securities as of Feb. 13, 2008.

The class action lawsuit, Merrick v. Stifel Financial Corp., et al., 08-cv-01167, is pending in the U.S. District Court for the Eastern District of Missouri. The suit alleges that Stifel Financial Corp. and its subsidiary Stifel, Nicolaus & Company, Inc. 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 August 8 claims that, pursuant to uniform sales materials and top-down management directives, Stifel Financial Corp. 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 Stifel Financial Corp., withdrew their support for the auctions. The suit claims that, as a result, investors have been unable to liquidate their auction rate securities.

Continue reading " Carey & Danis LLC Announces Auction Rate Securities Class Action Lawsuit Filed Against Stifel Financial Corp. " »

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Last week, three brokerage firms that sold auction-rate securities promised federal and state regulators that they would pay back $37 billion. Two of the firms – Citigroup and UBS – also agreed to fork over $250 million in fines.

St. Louis Post-Dispatch columnist David Nicklaus notes that e-mails released by Massachusetts regulators revealed that, in some cases, brokerages knew how shaky the auction-rate securities market had become. Nevertheless, the banks continued to tell investors that the instruments were highly liquid and as safe as cash.

The article, “Now playing: Latest revival of ‘Scoundrels on Wall Street,” also contains an interview with Carey & Danis lawyer Corey Sullivan. The article states:

“The investment firms also face numerous class-action lawsuits, including four filed by the Carey & Danis firm of St. Louis.

“Corey Sullivan, a lawyer at the firm, said the cases against UBS, Citigroup, Bank of America and Wells Fargo should benefit from the big-dollar regulatory settlements. ‘It certainly lends credence to the factual underpinnings of our cases,’ he said.”

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It was announced today that Citigroup Inc. has agreed to buy back $7.5 billion worth of auction-rate securities and it will pay a $100 million fine to settle charges levied by state and federal regulators that it fraudulently misled investors into believing the debts were “as safe as cash.”

The agreement was reached with the New York Attorney General’s office and the U.S. Securities and Exchange Commission.

Citigroup has until Nov. 5 to buy back $7.5 billion worth of auction-rate securities from about 40,000 retail customers, charities and small or mid-sized businesses. The bank will also reimburse investors who sold the securities at a loss and by the end of 2009 it will pay an additional $12 billion to institutional investors.

The $100 million fine will be split evenly between New York and the North American Securities Administrators Association.

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Citigroup may buy back more than $5 billion worth of auction-rate securities and pay up to a $100 million fine to settle allegations made by regulators that the company engaged in wrongdoing over the investments, the Wall Street Journal reports.

Citigroup, the largest U.S. bank by assets, has apparently been in talks this week with representatives from New York Attorney General Andrew Cuomo’s office, state securities regulators and regulators with the U.S. Securities and Exchange Commission.

As noted by Reuters, a settlement by Citigroup could become a model for other banks facing allegations that they misrepresented auction-rate securities as “safe as cash” investments.

Continue reading " Citigroup May Settle Auction-Rate Securities Claims " »

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Last Friday, New York Attorney General Andrew Cuomo sent a letter notifying Citigroup Inc. that he plans to file suit against the U.S. banking giant alleging it used fraudulent tactics to sell auction-rate securities.

As Bloomberg News reports in “New York to Sue Citigroup Over Auction-Rate Sales,” the letter of intent also claimed Citigroup destroyed documents under subpoena. During the five-month investigation, the Attorney General’s office requested telephone conversation recordings related to the marketing, sale or distribution of action-rate securities. However, Bloomberg reporter Karen Freifeld writes, the recordings at the auction-rate securities desk were destroyed.

In the letter, Cuomo said:

“The investigation has revealed that Citigroup has repeatedly and persistently committed fraud by making material misrepresentations and omissions in connection with Citigroup’s underwriting, distribution and sale of auction-rate securities.”

Continue reading " New York AG Plans to Sue Citigroup " »

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