Auction-Rate Securities

Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal

Published on: September 27, 2010 | by Shepherd Smith Edwards & Kantas, LLP

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 Continue Reading ›

Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders

Published on: September 17, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Calamos Asset Management, Inc., the Calamos Convertible Opportunities and Income Fund (NYSE: CHI), Calamos Advisors LLC, current trustees, and one former Fund trustee are now the defendants of a putative class action securities complaint purportedly submitted on behalf of a class of common fund shareholders. The securities fraud lawsuit is alleging breach of fiduciary duty, the aiding and abetting of that breach, and unjust enrichment related to the redemption of auction rate preferred securities (ARPS) after the ARS market collapsed in 2008.

In the securities fraud lawsuit filed by Christopher Brown, Calamos Holdings LLC founder John Calamos Sr. is accused of allowing the investment firm and its management team to benefit from investors’ losses. Brown’s complaint is a refiling of a lawsuit filed in federal court last July. That complaint was withdrawn earlier this month and the claims resubmitted in state court.

Brown contends that Calamos and others were aware they were breaching their fiduciary duty when they let fund advisers benefit while investors sustained financial losses in the “multiple millions of dollars.” Brown wants all losses restored.

He claims that even as the ARS market failed, a burden was not placed on the Calamos Convertible Opportunities and Income Fund, which held auction market preferred shares. However, in June and August, Calamos managers allegedly redeemed some of the funds’ holdings, which were replaced with debt financing that was “less favorable.” Brown says that because this advanced the interests of the managers, the funds’ investment advisors and affiliates but not the interests of common shareholders, it was a breach of fiduciary duty.

Brown is seeking class-action status for any investors in the fund since March 19, 2008. He wants a judge to prevent Calamos trustees from earning fees from the fund or acting as advisers.

Related Web Resources:
Calamos Investments Statement on ARPS Lawsuit for Convertible Opportunities and Income Fund, Centredaily.com, September 15, 2010
Calamos founder sued by investor who claims bad fund management, Chicago Business, September 14, 2010 Continue Reading ›

US Closed-End Funds Continue to Hold $26.4 Billion in Auction-Rate Preferred Shares, Says Fitch Ratings

Published on: September 9, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Even though it’s been awhile the auction-rate securities market froze in 2008, credit-ratings firm Fitch Ratings’s new report says that US closed-end funds still hold $26.4 billion in auction-rate preferred shares (ARPS). Researchers say that even though this figure is a 57% drop from the $61.8 billion that was trapped in ARS in January 2008 they are still surprised by the current amount.

While ARPS holders have obtained liquidity through many redemptions, there is still a significant amount that is outstanding. Fitch says that 61% (250) of closed-end funds continue to be leveraged with auction-rate preferred shares. This is down from the 347 in January 2008. Fitch’s report is based on a review of 437 US closed-end funds’ publicly available financial statements.

Since the ARS market collapse in February 2008, closed-end funds have redeemed shares at par value via refinancing or by lowering the funds’ leverage. Still others have offered to purchase the shares at below par value. 22% of the funds that Fitch reviewed has fully redeemed about $22.9 billion in ARPS, while 50% undertook partial redemptions of shares totaling $12.7 billion.

Municipal Securities Rulemaking Board Can Expand Public Information on Municipal Variable Rate Demand Obligations and Auction Rate Securities, Says SEC

Published on: September 8, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has approved the Municipal Securities Rulemaking Board’s proposal to expand publicly available information about auction rate securities and municipal variable rate demand obligations. The SEC also approved letting the MSRB require that municipal securities dealers provide more information about these securities while allowing them to make this data available through its Electronic Municipal Market Access website. The disclosures will hopefully enhance transparency for investors that want to assess key information regarding the degree of dealer support, auction liquidity, and variable rate securities resales.

Once the approval is implemented, which could take nine months, the MSRB will gather liquidity facility documents for variable rate demand obligations from municipal securities dealers. Documents may include stand-by purchase agreements, letters of credit, and identifying information related to the provider of the liquidity facility that was available at the time of the interest rate. Dealers will have to report ARS bidding data and documents defining auction procedures and interest rate setting mechanisms to the MSRB. All documents and information from the dealers will be made accessible through the EMMA Web site. EMMA currently offers free public access to interest rate information for ARS and VRDOs.

MSRB regulates banks and securities firms that trade, underwrite, and sell municipal securities. It also gathers and gives out market information and is committed to ensuring the key municipal market data is available and free to the public. This data allows retail investors to evaluate the risks and benefits. MSRB is a self-regulatory organization subject to Securities and Exchange Commission oversight.

Related Web Resources:
MSRB Receives SEC Approval to Create Additional Transparency for Variable Rate Securities, MSRB, August 26, 2010

Municipal Securities Rulemaking Board

Electronic Municipal Market Access

Stockbroker-fraud.com

Raymond James Loses Texas Auction Rate Securities Case and is Ordered by FINRA to Pay Couple $925K

Published on: September 4, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James and Associates Inc. and financial advisor Larry Milton must pay Rex and Sherese Glendenning $925,000, says a Financial Industry Regulatory Authority panel. The Texas securities case involved an auction-rate securities dispute. brokerage firm advisor Milton has been accused of misrepresenting that the ARS the couple invested in was extremely liquid.

The Glendennings opened their Raymond James (NYSE: RJF) account in 2008 right before the ARS market failed. They claim that Milton, who had invested $1.4 million of their funds in an ARS that consisted of sewer revenue bonds, did not tell them that there was an inherent possibility that the securities might fail. Instead, they allege, he lead them to believe that the ARS could be easily sold. You can imagine their dismay when Raymond James refused their request to repurchase the ARS at full value.

The Gleddenings are not the only ones that the broker-dealer has been ordered to compensate. In just the last two months, Raymond James has been ordered to buy back $3.5 million in ARS from investors. A FINRA panel ordered the brokerage firm to repurchase $2.5 million in ARS from investor Greg Merdinger, who claims that not only was he told that auction-rate securities were safe and very liquid (even more than market funds), but also he contends that no one apprised him that there was an illiquidity risk. Raymond James affiliates Raymond James & Associates Inc. and Raymond James Financial Services Inc. were ordered to make the ARS repurchase.

Related Web Stories:
FINRA: Raymond James must pay $925,000 to couple, Reuters, August 25, 2010
Raymond James faces $2.5 million payback ruling, Tampa Biz, July 26, 2010

Related Blog Posts:
Raymond James Ordered to Buy Back $2.5M in ARS by FINRA, https://www.stockbrokerfraudblog.com, July 28, 2010
Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities, https://www.stockbrokerfraudblog.com, June 22, 2009 Continue Reading ›

Eaton Vance and Closed-End Trusts Sued for Breach of Fiduciary Duty Related to Redemption of Auction Preferred Securities

Published on: September 3, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Eaton Vance Management says that five of the closed-end management investment companies that it advises have each received a demand letter on behalf of a putative common shareholder of the “Trusts” alleging breach of fiduciary duty related to the redemption of auction preferred securities after the auction markets failed in February 2008.

The “Trusts”:
• Eaton Vance Floating-Rate Income Trust (NYSE:EFR – News)
• Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG – News)
• Eaton Vance Limited Duration Income Fund (NYSE Amex: EVV)
• Eaton Vance Insured Municipal Bond Fund (NYSE Amex: EIM)
• Eaton Vance New Jersey Municipal Income Trust (NYSE Amex: EVJ)

The letters seeks to have the Trusts’ Board of Trustees take certain steps to remedy the alleged breaches of duty. Eaton Vance Management is an Eaton Vance Corp. subsidiary.

Also, purported class action complaints have been filed against ETG and EVV on behalf of a putative common shareholder of each Trust. The securities lawsuits are claiming breach of fiduciary duty related to the redemption of auction preferred securities. Eaton Vance Management, Eaton Vance Corp., and the Trustees of the Trusts also are defendants. Eaton Vance provides institutional and individual investors with a wide range of wealth management solutions and investment strategies.

Our securities fraud lawyers represent institutional investors throughout the US. We are here to help you recoup your investment losses.

Related Web Resources:

Institutional Investors, Eaton Vance

Closed-End Management Company, Investopedia

Read our Stockbroker Fraud Blog

Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute

Published on: September 1, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel says that Raymond James and financial advisor Larry Milton must pay Sherese and Rex Glendenning $925,000 over an auction-rate securities dispute. This is the third time this summer that Raymond James Financial Inc. (NYSE: RFJ) subsidiaries have been involved in an ARS dispute that was decided in FINRA arbitration. Since July 1, independent broker-dealer Raymond James Financial Services Inc. and brokerage firm Raymond James & Associates have been ordered to repurchase $3.5 million in ARS from clients.

The Glendennings set up their account with Raymond James in January 2008 before the market meltdown. Milton placed the couple’s $1.4 million in an ARS that contained sewer revenue bonds while failing to tell them about the risk involved.

The couple contends that Milton’s behavior wrongly gave them the impression that their investment was highly liquid and could be easily sold. However, Raymond James turned down their request to buy the ARS back at full value.

According to the Glendennings’ securities fraud attorney, the timing of the purchase was key to winning the award. The securities that they bought came up for auction for the first time thirty five days after they made the purchase. The auction failed and the couple were never able “ to go to auction.”

At the time of the ARS market crash in February 2008, Raymond James Financial clients held $1.9 billion in auction rate debt—now down to $600 million. To date, none of the securities regulators have sued the firm over ARS sales. Other financial firms, including Oppenheimer & Co. Inc. and Charles Schwab & Co. haven’t been as lucky.

Related Web Resources:
Raymond James pays more auction rate claims, Investment News, August 26, 2010

FINRA rules against Raymond James in auction rate securities case, Tampa Bay Business Journal, August 26, 2010

Stockbroker-Fraud Blog

UBS Ordered to Pay Auction-Rate Securities Investor Kajeet Inc. $81 Million

Published on: August 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay investor Kajeet Inc. $80.8 million for failed auction-rate securities. The brokerage firm disagrees with the decision and intends to file a motion to have the claim vacated.

Although Kajeet had only invested $8 million in ARS through UBS, the company, which markets cell phones for kids, contends that because its securities were frozen, a “domino effect” resulted and it ultimately lost $110 million. Also, Kajeet was forced to significantly cut its 60-person work team and it lost a key distribution deal with a national retail chain.

UBS had previously resolved ARS-related charges with an agreement that it would pay a $150 million fine and buy back $18.6 billion of the securities. The brokerage firm was one of a number of broker-dealers that agreed to repurchase over $60 billion in ARS from investors because they had allegedly misrepresented the securities as safe investments. When the $330 million ARS market froze in February 2008, UBS had over $35 billion in ARS that were held by some 40,000 customers.

Raymond James Ordered to Buy Back $2.5M in ARS by FINRA

Published on: July 28, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel is ordering Raymond James & Associates Inc. and Raymond James Financial Services Inc. to buy back $2.5M in auction-rate securities from an investor. Greg Merdinger has accused Raymond James Financial Inc. of failing to warn him about the risks associated with ARS. In 2009, he filed a claim accusing the broker-dealer of breach of both contract and fiduciary duty.

Merdinger claims that from October 2006 to February 2008, Raymond James & Associates Inc. recommended that he purchase the securities while claiming that they were more liquid than money market funds, which Merdinger wanted to invest in until he was persuaded otherwise. He contends that Raymond James never told him that the ARS could become illiquid and that even into February 2008, when the market froze, Raymond James continued to advise him to buy the securities. One more purchase was even made.

Raymond James Financial’s General Counsel, Paul Matecki, has been quick to note that the broker-dealer has provided evidence that it did not know that the ARS market was at risk of failing before February 2008 when it did collapse. He also claims that there is no evidence indicating that any of its employees knew that the securities would fail.

However, Merdinger’s securities lawyer says there are copies of emails showing that Raymond James Financial managers knew the ARS market was experiencing difficulties way before it collapsed. Early last year, Raymond James chief executive and chairman issued a letter, filed with the Securities and Exchange Commission, apologizing to clients for the role the investment bank played in their ARS buys.

In addition to the $2.5M ARS repurchase, Merdinger has been awarded 5% interest on the amount until Raymond James buys back the securities. He is also to receive an additional $86,000.

Related Web Resources:
Raymond James faces $2.5 million payback ruling, BizJournals, July 27, 2010
Raymond James Ordered To Buy Back $2.5M in Auction-Rates, WSJ, July 26, 2010
Tom James apologizes for auction rate security purchases, BizJournals, January 5, 20009 Continue Reading ›

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award

Published on: April 5, 2010 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Deborah Batts says that Credit Suisse Group AG must pay STMicroelectronics NV the rest of the $431 million arbitration award owed for unauthorized auction-rate securities-related investments. FINRA had issued the securities fraud award last year.

STMicroelectronics NV says that Credit Suisse invested in high risk securities, including ARS with collateralized debt obligations, for the company when the investment bank was only supposed to invest in student loans backed by the US government. The European-based semiconductor maker sued Credit Suisse when the ARS’ value dropped. STMicro accused the broker-dealer of securities fraud, unjust enrichment, breach of contract, failure to supervise, and breach of fiduciary duty.

A FINRA panel ruled in favor of STMicro, awarding the company $400 million in compensatory damages, $3 million in expert witness and legal fees, and $1.5 million in financing fees, while directing Credit Suisse to pay 4.64% on the illiquid ARS in STMicro’s account until the fees and damages were paid.

Credit Suisse sought to vacate the FINRA award and argued that a panel arbitrator had been prejudicial toward the investment bank. The broker-dealer also accused the panel of disregarding the law. The court, however, decided that Credit Suisse’s claims were meritless. The remaining balance owed to STMicroelectronics is approximately $354 million, including $23 million in interest.

Earlier this year, Credit Suisse broker Eric Butler received a 5-year prison sentence for selling subprime securities to investors. His fraudulent actions cost them over $1.1 billion.

Since the ARS market meltdown in February 2008, at least 19 broker-dealers and underwriters have been sued. Regulators forced some of them to repurchase billions of dollars worth of auction-rate securities.

Our Shepherd Smith Edwards and Kantas founder and Stockbroker fraud lawyer William Shepherd says, “One issue which investors face when they are required to arbitrate is that they have little hope of appealing the arbitrators’ award if he/she lose. However, this works both ways: It is also very difficult for the brokerage firm to appeal as well, and few even try. Thus, an investor can finish a case, win, and get paid in about a year. In court, the process can drag out for 5 years or more.”

STMicroelectronics Sues Credit Suisse Over Securities, NY Times, August 7, 2008
FINRA Awards STMicroelectronics $406 Million Against Credit Suisse Securities (USA) LLC, STMicroelectronics, February 16, 2009 Continue Reading ›