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Greco & Greco, P.C.

W. Scott Greco

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Greco & Greco's lawyers represent investors to recover losses caused by securities fraud, churning, lack of suitability, negligence, sales of unregistered securities, unauthorized trading, and other misconduct by stock brokers, investment advisors, financial planners and their firms.

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Auction Rate Securities (ARS)

Businesses left out of Auction Rate Securities Settlements?

As discussed in this Bloomberg article, the settlements reached by regulators regarding auction rate securities sales with many of the large brokerage firms fail to help medium to large businesses who were also sold ARS.  Although the required buyouts in the settlements with UBS, JPMorgan Chase, Morgan Stanley, and Wachovia Corp. reached $35 billion, this amount only approximates 18% of the $200 billion estimated to be still outstanding. 

Although the settlements call for the firms to use their best efforts to help institutional investors stuck with the frozen ARS, they fall short of requiring a buyback.  This situation may force mid-sized to large companies to seek redress on their own through the arbitration or court system.  Please contact Greco & Greco if your business is holding frozen ARS as a result of fraudulent sales practices of a brokerage firm.

Posted by W. Scott Greco on 08/22/08.
ArbitrationAuction Rate Securities (ARS)Brokerage FirmsCitigroupJ.P. MorganMerrill LynchMorgan KeeganUBSWachoviaState RegulatorsPermalink

Consequential Damages for Auction Rate Securities Unresolved

As set out in this Kansas City Star article Wachovia and JP Morgan Chase have joined UBS, Morgan Stanley, and Citigroup in settling charges related to their sale of Auction Rate Securities.  Although the settlement agreements with exact details are not completed, it appears that the firms will be buying back frozen auction rate securities sold to individuals and small businesses.
Left open is the recovery of consequential damages suffered by buyers of the allegedly liquid ARS who couldn’t access their cash.  The press releases and articles related to the settlements reference that customers will be able to seek recovery of their consequential damages through arbitration, with the firms admitting liability, but not conceding damages. 
If you or your business suffered monetary damages as a result of having your funds frozen in ARS, please contact Greco & Greco for a free consultation with one of our attorneys to discuss options for recovery of your damages.

Posted by W. Scott Greco on 08/21/08.
Auction Rate Securities (ARS)Brokerage FirmsCitigroupJ.P. MorganMorgan StanleyUBSWachoviaPermalink

Only 4% of Student Loan Auction Rate Securities Have Been Refinanced to Date

According to this Bloomberg article, only 3 billion of the 85 billion in outstanding student loan Auction Rate Securities have been refinanced to date.  Furthermore, due to these securities’ low interest rates, the prospects for an immediate solution are bleak.  The article further reported that approximately two-thirds of publicly traded companies that are holding student loan auction rate securities have marked down the value of the securities, sometimes as much as 35%.

If you were sold student loan auction rate securities by a brokerage firm who represented that they were safe and/or liquid, and you would like to discuss your legal options, please contact Greco & Greco for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 07/11/08.
Auction Rate Securities (ARS)Brokerage FirmsPermalink

Criminal Probe Initiated Regarding Auction Rate Securities Sales

According to this Wall Street Journal article, federal prosecutors in New York are investigating sales of auction rate securities by two former Credit Suisse brokers.  According to the article, the investigation allegedly involves representations made that the auction rate securities were backed by student loans, when in fact they were actually backed by CDO’s (collateralized debt obligations).  This appears to be the first reported criminal investigation related to Auction Rate Securities Sales.

If you are an investor stuck with Auction Rate Securities, and you would like a free consultation to discuss your legal options with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 07/09/08.
Auction Rate Securities (ARS)Brokerage FirmsCredit SuisseCMOs / CDOsPermalink

UBS Charged With Fraud in Auction Rate Securities Sales

The State of Massachusetts filed a Complaint today against UBS claiming UBS engaged in fraud and dishonest and unethical conduct with regard to its sales of Auction Rate Securities (ARS).  Link to Complaint and Exhibits.  In a 101 page Complaint, Massachusetts references voluminous emails it obtained from UBS supporting its claims, and further charges UBS with books and records violations for failures to produce additional documents.

The Complaint describes UBS’s “all-out” effort to market ARS, and especially “troubled student loan-backed auction rate certificates,” to offset increasing inventory from corporate investors who were selling the ARS due to concerns about the market.  Despite awareness of serious problems with the market, UBS was initiating conference calls in August 2007 with its financial advisors to encourage the sale of ARS to retail clients and “unload this paper.”

The Complaint further describes the incredible conflicts of interest surrounding the market:  “by setting up a situation where it was actively controlling whether auctions would clear and what rate they would clear at, UBS had (unbeknownst to its customers) set up a situation which put it in a fundamentally conflicted role between its desire to keep its underwriting clients happy with the promise of low financing costs and its “moral obligation” to retail customers to keep the auctions it had set up afloat.”

If you are an investor stuck with Auction Rate Securities, and you would like a free consultation to discuss your legal options with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 06/26/08.
Auction Rate Securities (ARS)Brokerage FirmsUBSState RegulatorsMassachusettsPermalink

Auction Rate Securities Redemption Analysis

In this Barron’s article, the author sets out one of the more complete analyses we have seen regarding the various types of frozen Auction Rate Securities, and their likelihood (or unlikelihood) of being redeemed or sold in the future.  The various types of ARS reviewed in the article include Municipal Issuers, Taxable Closed-End Funds, Municipal Closed-End Funds, Student Loans, and Collateralized Debt Obligations (CDO).

According to the article, the bleakest outlook is seen for the ARS backed by Student Loan Funds and CDOs which comprise about one-third of the ARS market ($105 billion of the $333 billion market).  Only about $1 billion of the $85 billion in student loan ARS have been refinanced to date due to high refinancing costs and little incentive to refinance the comparatively low rates these ARS are paying.

The Collateralized Debt Obligation ARS are an even thornier issue.  The Barron’s article states that the $20 billion in these ARS won’t be redeemed and that some may have invested in subprime mortgage securities.  The chart at the end of the article estimates the market price of these securities at 50 cents on the dollar.

Many brokerage firms marketed and sold ARS to investors as safe, liquid alternatives to money market funds.  If you are stuck with frozen ARS and you would like a free consultation to discuss your legal options with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 05/28/08.
Auction Rate Securities (ARS)CMOs / CDOsSubprime MortgagesPermalink

Some Auction Rate Securities to be bought back at discount

The Missouri Higher Education Loan Authority announced this week that it would begin buying back a portion of its auction rate securities at a discount on the Restricted Securities Trading Network.  See the related news stories in Forbes and the St. Louis Business Journal

This news is a mixed blessing for investors stuck with these or other auction rate securities.  While such a buy-back will finally allow them to escape from these investments, they will probably have to take a loss on the investment if it is bought back at a discount on a secondary market.  Many investors around the country were sold auction rate securities by major brokerage firms who incorrectly claimed they were safe, liquid, cash equivalents.  This has turned out to not be the case as evidenced by the collapse of the auction markets earlier this year.  Such sales practices can form the basis for claims of federal and state securities fraud among other causes of action.

If you are an investor who was sold Auction Rate Securities, and you would like to discuss your legal options with an attorney, please Contact Greco & Greco.

Posted by W. Scott Greco on 05/09/08.
Auction Rate Securities (ARS)BondsPermalink

Auction Rate Securities Failures

Auction Rate Securities and Auction Rate Preferred Securities (ARS) are securities made up of long term bonds or preferred stock with variable interest rates and yields.  The yields are periodically reset through Dutch auctions.  ARS are often marketed and sold by a single dealer with the only resale market being through a successful auction.  Problems have arisen in recent months as a result of the failures of the auctions, leaving investors in the lurch and unable to redeem the security.  As set out in this SmartMoney article, ARS have been marketed as a safe, liquid alternative to money market funds.  Investors believing they had their money in a safe liquid investment are understandably concerned by the failures in the marketplace for these securities, and our firm has been monitoring the situation closely and discussing the matter with concerned individuals and businesses.  Misrepresentations and omissions in the sale of a security can form the basis for a claim for securities fraud as well as other legal claims for recovery of damages.

As recently as 2006, the SEC censured 15 of the largest brokerage firms for sales and auctions of Auction Rate Securities. As stated by the SEC in its press release, “since the firms were under no obligation to guarantee against a failed auction, investors may not have been aware of the liquidity and credit risks associated with certain securities.”  The SEC further stated that “the firms violated Section 17(a)(2) of the Securities Act of 1933, which prohibits material misstatements and omissions in any offer or sale of securities.”  The fifteen firms which were censured were Bear, Stearns & Co., Inc., Citigroup Global Markets, Inc., Goldman Sachs & Co., J.P. Morgan Securities, Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated/ Morgan Stanley DW Inc., RBC Dain Rauscher Inc., A.G. Edwards & Sons, Inc., Morgan Keegan & Company, Inc., Piper Jaffray & Co., SunTrust Capital Markets Inc., Wachovia Capital Markets, LLC, and Banc of America Securities LLC.  Read the SEC Order here.

UBS appears to be the first firm to actually begin lowering the values of auction rate securities on its customers’ statements, as reported by many news sources on March 29 including this Reuters article.  Citing a Wall Street Journal article, Reuters reported that the markdowns could exceed 20 percent for some customers.  Additional concessions from other firms may be forthcoming as the first quarter of 2008 ends.

State Regulators, including Massachusetts, have also begun investigations of the auction rate securities market with Massachusetts reportedly issuing subpoenas to UBS, Merrill Lynch, and Bank of America. 

The Financial Industry Regulatory Authority (FINRA) released an Investor Alert on March 31, 2008 regarding auction rate securities which purports to set out various options for investors stuck with these products.  FINRA, which claims to be a “trusted advocate for investors,” notably fails to mention contacting an attorney or filing an arbitration claim as options.  If you are an investor who was sold Auction Rate Securities, and you would like to discuss your legal options with an attorney, please Contact Greco & Greco.

Link to Securities-Lawyers.net Auction Rate Securities page.

Posted by W. Scott Greco on 03/03/08.
Auction Rate Securities (ARS)BondsBrokerage FirmsA.G. EdwardsBanc of AmericaBear StearnsCitigroupDeutsche BankFerris Baker WattsLehman BrothersMerrill LynchMorgan KeeganMorgan StanleyPiper JaffrayRBC Dain RauscherSuntrustUBSWachoviaFINRAState RegulatorsMassachusettsSuitabilityPermalink

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