Legal News

Subprime Legal: Skepticism on ARS Suits; the CFO Suite; and More

By Jamie Heller

For lawyers digging deep in the chilled auction-rate securities market — and other credit-crunch followers — here are a few Tuesday tidbits.

Auction-Rate Securities: Legally Elusive? Earlier this month, Law Blog colleague Amir Efrati wrote a post suggesting that the auction-rate securities mess could prove legally nettlesome for Wall Street. Today, Bloomberg news has a different view.

Lawyers may be “unable to prove their clients lost money or collect fees for themselves,” writes Bloomberg. The article says that while many potential class actions have been filed, they’ll face a high bar because investors’ circumstances differ.

Another factor: While many investors have lost liquidity, they are still getting paid interest, in some cases higher penalty rates. “I don’t see how you get around the fact that, for the most part, the investors are doing better,” Bloomberg quotes a former SEC lawyer as saying. And re liquidity: Columbia prof John Coffee says: “I don’t know that you can easily measure the loss of liquidity.”

What may have legs? Arbitrations, the article suggests.

ARS and the CFO: Journal reporter Liz Rappaport writes in today’s edition that more than 400 public companies, including some brand namers, held at least $30 billion in auction rates. The market’s meltdown is creating an accounting problem, with some companies having written down the value of their holdings and others not doing so even though market prices have fallen substantially. Plaintiffs securities lawyers, any meat for you here?

The Backstory at Bear: Okay, it’s not a legal story per se, but anyone following or getting work from the credit crisis would be well advised to read Journal reporter Kate Kelly’s page-one article today on lost opportunities to save the company – the first in a three-part series. The money quote comes from Bear veteran Ace Greenberg, who wanted his colleagues to sell risky trading positions. He recalled what his father, an Oklahoma City clothier, once told him: “If something isn’t moving, sell it today because tomorrow it will be worth less.”

Full post as published by Law Blog - WSJ.com on May 27, 2008 (boomark / email).