Securities Law Prof Blog

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

Monday, June 30, 2008

Auction Rate Securities Cases Lead to Uptick in Arbitration Filings

The number of new arbitration filings at FINRA are up somewhat over 2007, after dramatic decreases since the peak of 2003, and the increase in customer disputes has been largely attributed to auction rate securities (ARS) cases, where customers allege that they were sold the ARS on the representation that these were liquid securities and were not told of liquidity risks.  Last week, as we reported, the Massachusetts Securities Division brought a complaint against UBS for its sales practices and conflicts of interest involving ARS, complete with internal memoranda where UBS employees spell out the aggressive sales efforts used to sell the ARS underwritten by UBS in the face of market resistence to them.  Investment News reports that plaintiffs' tort attorneys are heavily advertising their services to represent investors whose ArS have become illiquid, much to the ire of the brokerage firms, who insist that they are trying to work out the difficulties with their customers.  InvNews, Attorneys see gold in auction rate mire.  The last time personal-injury lawyers sought out investors' arbitration claims was the tainted analysts scandal, when Eliot Spitzer released investment banks' internal emails that disparaged the securities the analysts were promoting.  To the surprise of some attorneys, who saw these cases as easy picking, the outcomes did not go well for investors, as arbitration panels generally were skeptical that investors' losses were due to the analysts' reports, rather than the tech crash.  It remains to be seen how the ARS claims will work themselves out.

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