Administration August 17, 2009

Cuomo Schwab Suit over ARS Sales Expected this Week

August 17, 2009 (PLANSPONSOR.com) - Andrew Cuomo, the New York state Attorney General, is likely to file suit as soon as this week against Charles Schwab over Schwab's auction-rate securities' (ARS) sales, the Wall Street Journal reported.
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According to the Journal, the Cuomo suit, expected to be filed in New York State court, will levy civil fraud charges in connection with ARS sales and marketing activities. Cuomo has already informed the San Francisco investment company that it faced litigation over the issue unless it reached a settlement that involved buying back the ARS instruments.

A Schwab spokesman told the Journal the company hasn’t received the suit, and declined further comment. Schwab has maintained it did nothing wrong and couldn’t have predicted the collapse in the auction-rate market. “The attorney general’s approach is inconsistent with the law, basic fairness, and common sense,” the Schwab spokesman told the Journal.

The company has blamed its clients’ losses on large Wall Street underwriters of the auction-rate securities, claiming that Schwab was merely a distributor and was deceived by underwriters about the market’s health.

According to the newspaper report, Cuomo’s suit is expected to include transcripts of recordings between Schwab brokers and customers that he alleges show how the brokers misrepresented auction-rate securities as easy-to-sell alternatives to cash.

The Wall Street firms that marketed the ARS instruments and have already agreed to buy them back from clients include Merrill Lynch, Citigroup, JPMorgan, UBS, and Goldman Sachs (see  Cuomo’s ARS Probe Broadens ).

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