Page Perry’s Investment Fraud Lawyer Blog featured last week an interesting and thoughtful post about securities arbitration.
A federal judge in Atlanta recently dismissed a class action lawsuit brought against SunTrust for fraud in the sale of auction rate securities. The case was not dismissed on the merits of investors’ claims against SunTrust, but based on technical legal requirements about what it takes to plead a claim. Those requirements are strict in securities fraud cases that get filed in federal court, especially class actions, but they do not apply to cases that get filed in arbitration.
Auction rate securities are fixed-income investments in which interest or dividends are set by periodic auctions. Typically, such securities were widely marketed as conservative cash equivalents, but the broker-dealers who sold them did not disclose that their liquidity was contingent upon the success of auctions that were in turn dependent upon the financial support of the brokerages and investment banks that ran the auctions. When the auctions for these securities froze in February 2008, thousands of investors were left holding over $300 billion in illiquid securities. Many investors were eventually able to cash out due to regulatory settlements and redemptions, while others have sold their securities at a deep discount on the secondary market. “But many investors are still unable to get access to their money,” says attorney Craig T. Jones, who represents a number of investors in auction rate securities case, “and even those who have obtained partial liquidity through regulatory settlements or secondary market sales have valid legal claims for their losses.” Jones’ firm, Page Perry LLC of Atlanta, has been filing individual arbitrations of behalf of most investors, including those who were defrauded into buying auction rate securities without full disclosure of the risks.
Read more here.