In the U.S. District Court for the Southern District of New York, U.S. District Judge Lewis A. Kaplan has allowed some of the investor claims in the class action auction-rate securities lawsuit against broker-dealer Raymond James Financial Inc. (RJF) and its broker-dealer subsidiary to proceed. This is the first ARS class action case filed since the auction rate securities market failed in 2008 to survive a dismissal motion. The case can now go to the discovery stage.
Kaplan, who had dismissed an earlier lawsuit in this case, let the plaintiffs move forward with their auction-rate securities case on the claim that Raymond James & Associates Inc. (RJA) violated antifraud provisions between November 2007 and February 13, 2008. A claim against RJF was allowed to proceed because of its “operational and management control” of RJA during this time. Other claims were dismissed.
Investors had filed the initial class action in April 2008 against RJA, RJF, and Raymond James Financial Services Inc. (RJFS), another Raymond James broker-dealer subsidiary. The plaintiffs contended that between April 8, 2003 and February 13, 2008, the two subsidiaries told financial advisers that ARS were extremely liquid, short-term investments that could work well for any investor with at least $25,000 and with as little as a week to invest. However, when the auction-rate securities market failed, over $300 million in ARS became illiquid. Per Kaplan, RJA sold $2.3 billion of ARS, underwrote $1.2 billion, and was the auction dealer for over $725 million.
Auction-rate securities cases filed by individual investors have been faring better than class-action ARS lawsuits. Of the class-action and group complaints filed against some 19 underwriters and broker-dealers since the ARS market failed, Bloomberg.com reports that Citigroup, Deutsche Bank AG, and at least six other financial firms have managed to get the lawsuits thrown out by judges ruling that the complaints failed to meet pleading requirements. Some plaintiffs were told to refile their lawsuits and provide more details.
Raymond James Auction Rate Class-Action Fraud Suit Is First to Be Upheld, Bloomberg, September 8, 2010
Court Clears Lawsuit Against Raymond James, FA-Mag.com, September 9, 2010
Contact our securities fraud law firm to discuss your auction-rate securities case.