Gibbs Mura and its associated co-counsel served as lead counsel in a number of lawsuits filed in connection with the collapse of the $330 billion auction-rate securities market. The firm led cases against such banks as: UBS, Deutsche Bank, Bank of America, E*Trade, Raymond James and Merrill Lynch.
>>Read Daniel Girard’s article on auction rate securities “Billions to Answer For”
Background on Auction-Rate Securities
Auction-rate securities are long-term bonds or preferred stocks that pay interest or dividends at rates supposedly determined through periodic auctions. In February 2008, the market for auction-rate securities collapsed, and investors discovered that they were unable to liquidate their investments. Lawsuits were filed against banks and broker-dealers that sold the auction-rate securities, alleging that they had misrepresented the liquidity and risks of the auction rate notes to individual investors and corporations, often labeling these securities as “cash or cash equivalents,” in investment materials.
It was later revealed that broker-dealers had been purchasing auction rate securities for their own accounts to ensure that the auctions would not fail and that the securities remain liquid. As a result, when the brokers stopped supporting the auctions in early 2008, numerous auctions run by the broker-dealers failed. The market-wide collapse in auction rate securities resulted in economic losses and severe hardships for investors.
Auction-Rate Redemptions
In late 2008, several state regulators stepped in, initiating investigations and bringing lawsuits against many of the broker dealers that sold auction-rate securities to retail investors. Eventually, several major Wall Street firms agreed to repurchase auction-rate securities from individuals, charities and small businesses that had purchased the securities directly from the banks.