|  | | 2008 News and Press Releases | | |
HEADLINE NEWS:
Will Investors "Opt Out" of Auction Rate Securities Settlements?
Kevin LaCroix
The D & O Diary. November 23, 2008
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EXCERPT: Though multi-billion dollar auction rate securities settlements were announced to great fanfare some months ago, litigation involving auction rate securities continues to mount […] The Hutchinson Auction Rate Securities Lawsuit. First, on November 14, 2008, Hutchinson Technology filed a securities lawsuit in Minnesota federal court against UBS and related entities, accusing the defendants of fraud in connection with their purchase on Hutchinson’s behalf of approximately $70 million in illiquid auction rate securities under a discretionary cash management agreement. Hutchinson’s complaint, which can be found here, alleges that UBS sought to protect its own balance sheet by seeking “secretly to shift the risk from its swelling inventory of ARS onto clients like Hutchinson by pitching ARS as safe, liquid, ‘cash equivalent’ investments while knowing that, in fact, the purported liquidity of the ARS had become an illusion.” The complaint quotes extensively from UBS e-mails and other internal documents allegedly showing that the defendants had conflicts of interest with their own clients to whom they sold the securities, as well as a growing awareness of the dangers associated with a failing ARS marketplace. The complaint alleges that the defendants violated federal and state securities laws as well as other state statutory and common law duties. What makes the Hutchinson complaint of particular interest is that it expressly acknowledges UBS’s August 2008 auction rate securities settlement, which the complaint also implicitly acknowledges applies by its terms to Hutchinson. However, the complaint alleges that the settlement “does not resolve the dispute between Hutchinson and UBS” in that the settlement’s terms “do not return Hutchinson to the position it would otherwise be in but for UBS’s fraud.” |
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