Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, August 7, 2008

Morgan Stanley Agrees to Buy Back ARSs from Massachusetts Municipalities

The Massachusetts Attorney General has entered into a settlement with Morgan Stanley & Company (Morgan) resolving allegations involving the investment bank’s sale of inappropriate auction rate security investments to Massachusetts municipalities.  In addition, Morgan will complete a full review of all investment clients and identify any and all Massachusetts towns and cities that have invested in auction rate securities through the investment bank.  Morgan will then repay the towns and cities all of their investment monies.  Morgan also agreed to cooperate with the Attorney General’s Office in its ongoing review of auction rate securities issues.  The Attorney General’s Office began a review of Morgan’s marketing tactics to municipalities in February 2008.  Morgan agreed to reimburse $1.5 million in investment monies to the city of New Bedford and the town of Hopkinton. 

              This is the third recovery by the Attorney General’s Office against an investment bank regarding auction rate securities.  In February, 2008, the Attorney General’s Office obtained a repayment by Merrill Lynch of $13.7 million for the city of Springfield, which allegedly had been misled into purchasing auction rate securities.  In May, 2008, the Attorney General’s Office obtained $37 million in recoveries for various towns and cities that had been allegedly misled into investing into risky auction rate securities by agents of investment banking giant UBS.  UBS also in July paid an additional $1,000,000 to the Commonwealth related to the sales of these instruments and reimbursed an additional $3.4 million to the remaining UBS municipal clients for their investments.

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