Legal News

Cuomo Talks To ?Chuck? About ARS After-Party; TD Ameritrade Settles

By Amir Efrati

The Law Blog remembers the summer and fall of 2008 as New York Attorney General Andrew Cuomo’s first big battle with Wall Street.

The $330 billion auction rate securities market had collapsed in February. Hundreds of thousands of individuals, charities and small business were raising a ruckus about not being able to sell the securities they held. Cuomo (pictured) and other regulators then induced settlements from numerous financial firms that marketed the securities to investors as “cash-equivalents.” We called it the ‘ARS party’ (here, here, here and here). To date, Wall Street firms and other brokerages have agreed to buy back more than $60 billion of the outstanding securities from their investors.

UPDATE: This morning WSJ reports that TD Ameritrade Inc. agreed to buy back $456 million of securities from customers as part of a settlement with Cuomo, Pennsylvania securities regulators and the Securities and Exchange Commission.

Cuomo also wants Charles Schwab, whose customers got stuck with $789 million worth of securities, to buy back the securities from its investors. In a letter made public in today’s WSJ, Cuomo wrote to Schwab that it would face a civil-fraud lawsuit if it didn’t reach a settlement. The letter said Schwab brokers who sold auction rate securities were unaware of the risks associated with the market, and that Schwab execs knew about problems in the market but didn’t disclose that to customers.

Schwab said the allegations are “without merit” and “unfairly lay blame on our company for an illiquid market” caused by improper behavior by Wall Street firms.

Meanwhile, in Brooklyn this morning, jury selection is expected to begin for the fraud trial of former Credit Suisse broker Eric Butler, accused of lying to customers about more than $1 billion worth of auction rate securities he and a colleague sold to them. (Background here and here.)

However, Butler’s former colleague, Julian Tzolov, who was taken into custody in Spain last week and waived extradition, is on his way back to New York and prosecutors are asking for a delay in jury selection so the two can be tried together.

UPDATE: The Butler/Tzolov trial has been adjourned until Wednesday.

Full post as published by Law Blog - WSJ.com on July 20, 2009 (boomark / email).