Auction-Rate Investors Get Redo After Loss of First Fraud Suits

Auction-Rate Investors Get Redo After Loss of First Fraud Suits - 12/17/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Auction-Rate Investors Get Redo After Loss of First Fraud Suits
Thom Weidlich

Bloomberg. December 17, 2009
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EXCERPT: Auction-rate securities investors who sued banks including Citigroup Inc. and UBS AG to recoup billions of dollars in losses went 0 for 5 as their first cases were thrown out. Now some are gearing up for a rematch over part of the $149 billion in securities that remain outstanding. In three of the class actions, judges allowed the investors to refile their complaints after finding the initial suits failed to prove they lost money or satisfy a 1995 federal securities-fraud law designed to discourage frivolous stock-loss suits. Citigroup, UBS and Raymond James Financial Inc. have again asked that the cases be tossed out. “The private litigation has run into a brick wall,” said James Cox, a law professor at Duke University in Durham, North Carolina. The legal bar for bringing such lawsuits has been too high for auction-rate investors to surmount, he said. Those investors may need a change in federal law if the 1995 act proves too big an obstacle for genuine claims, said Elizabeth Warren, who chairs the congressional oversight panel monitoring the Troubled Asset Relief Program. She suggested the idea for a Consumer Financial Protection Agency. “The rules in place for liability and the right to bring a lawsuit under these circumstances are determined by a combination of case law and legislation,” Warren said. “If we don’t like where the balance point is, we at least have the legal capacity to change that.” Investors sued at least 19 broker-dealers after the $330 billion auction-rate market froze in February 2008 as credit tightened and banks stopped participating in auctions that set interest rates for the investments. The banks touted the securities as being as safe as cash, plaintiff investors said.

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