The Resolution Law Group: NY AG’s ARS Lawsuit Against Charles Schwab & Co. Are Revived by Appeals Court

A New York Appellate Division’s panel has unanimously agreed to revive the state attorney general’s auction-rate securities lawsuit against Charles Schwab and Co. (SCHW). The 2009 securities case accuses the financial firm of committing fraud in its sale and marketing of the financial instruments. The decision reverses a state judge’s ruling to throw out the complaint.

According to the NY ARS lawsuit, the broker-dealer’s brokers made false representations that the securities were safe and liquid. In a 4-0 decision, the appeals panel said that the state had given enough evidence to merit a trial on two claims submitted per its Martin Act, a 1921 law that gives the attorney general of New York the ability to prosecute fraud without proof of intent. Under the law fraud is defined as acts that involve misleading or fooling the public.

Per the panel’s ruling, the claims are revived only as it pertains Schwab’s alleged misconduct before 9/5/07, which is when the first ARS sold by Schwab failed. The state wants the company to repurchase securities from customers and pay civil penalties and restitution.

However, the appeals court also upheld the dismissal of two claims not submitted under the Martin Act. It said that NY’s AG lacked standing to make them. Then-Attorney General Andrew Cuomo is the one that brought the lawsuit.

Unlike Merrill Lynch (MER), Citigroup (C), and UBS (UBS), Schwab was one of the brokerage firms that opted not to settle with Cuomo over ARS fraud claims. A Schwab spokesman maintains that the financial firm did not aggressively market auction-rate securities and that 98% of the ARS have ben redeemed from customers.

Auction-Rate Securities
ARS are long-term debt with interests that periodically reset via auctions. Banks fled the $330 billion auction-rate securities market in early 2008 and the market failed. Thousands of investors were left with illiquid securities they couldn’t sell even though financial representatives told them that the financial instruments were liquid, like cash.

Contact our ARS securities law firm today.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s