Corporate & Securities Law

Auction-rate securities continue to be in the news.  Recently, the Securities and Exchange Commission announced that it was seeking information on auction-rate debt sales.  According to Lori Richards, head of the SEC's Office of Compliance Inspections and Examinations, "We are looking at representations made to investors when they purchased auction-rate securities."

According to the news release, the SEC's inspections office sent letters to the biggest sellers of auction-rate debt this month seeking the names of customers who had purchased the notes and the identities of the brokers who had sold them.

In related news, the North American Securities Administrators Association today said that regulators in Florida, Georgia, Massachusetts, Illinois, Missouri, New Hampshire, New Jersey, Texas and Washington were coordinating their probes of the $330 billion market.  Importantly, the President of the North American Securities Administrators Association Karen Tyler stated, "Our focus is to determine what conduct took place at the point of sale -- what was potentially misrepresented and omitted -- and our goal is securing for investors access to their cash as requested."  She said if the product was represented to be a cash equivalent going in, it must be treated as a cash equivalent going out. 

Last week, New York Attorney General Andrew Cuomo was reported to have subpoenaed 18 banks and brokerages about their involvement in the securities.  Those banks included UBS, Merrill Lynch, Goldman Sachs, Citigroup, Raymond James Financial, First Albany, Wachovia Corp., Morgan Keegan, Piper Jaffray, AG Edwards, Deusche Bank, TD Ameritrade, Lehman Brothers Holdings, RBC Dain Rauscher, Bank of America, JPMorgan Chase, Morgan Stanley and E*Trade Financial. 

TD Ameritrade is now facing a lawsuit over auction-rate securities, though investors ought to beware that that is a class-action lawsuit and they should consider whether or not they will receive anything more than nominal sums in settlement or in any legal action.

On the heals of all these investigations, SNSFE is announcing that it is gathering a library of documents that will pertain to auction-rate securities brochures, descriptions and other materials. 

Of note, the Bond Market Association in 2006 published Best Practices for Broker-Dealers of Auction-Rate Securities.  Section 4.7.1 states:

An initial offering of Auction Rate Securities is effected by means of a prospectus or offering statement.  Most subsequent auctions of such securities are secondary market transactions that do not involve a requirement to deliver a prospectus or official statement.  Broker-Dealers, however, often use marketing materials and other disclosure documents to identify the issuer and inform investors of the salient features of the program, including the Auction Procedures.  Such disclosure document should reflect current auction practices.  Broker-Dealers should consider using website postings, educational brochures and/or disclosure in confirmations to help Holders and Prospective Holders understand the market for Auction Rate Securities.

Most investors have reported they did NOT understand the market for auction-rate securities or the risk involved. 

SNSFE should be contacted in the event the investors have materials they would like to share in the library that SNSFE is putting together, as well as to discuss bringing claims to liquidate such investments.