June 6, 2008 – Crosby & Higgins LLP Files $2.2 Million Securities Arbitration Arising out of Fraudulent Sales Practices in Connection with Auction Rate Securities in California
June 6, 2008
Crosby & Higgins LLP has filed a demand for arbitration with the Financial Industry Regulatory Authority (FINRA) on behalf of the heirs of a California estate against a major Wall Street investment firm arising out of fraudulent and abusive marketing and sales practices for auction rate securities. An auction rate security is a debt instrument with a long-term nominal maturity but with interest rates reset through a Dutch auction typically held every 7, 28, or 35 days. Traditionally, the financial industry provided liquidity to the ARS market when sellers outnumbered buyers at auction. However, the entire securities industry abandoned the ARS auctions during the week of February 11, 2008, causing the market to collapse and leaving investors holding approximately $300 billion in illiquid securities. In this particular case, the investment firm and its stockbroker completely ignored investor suitability requirements, and instead, misrepresented the liquidity risks of ARS and falsely represented that ‘seven day auction securities’ were money market ‘cash equivalents.’ The estate had set aside the cash to pay taxes that are due in July. Crosby & Higgins LLP commenced the arbitration seeking compensatory damages in excess of $2.2 million together with punitive damages, with the Financial Industry Regulatory Authority’s dispute resolution tribunal in Los Angeles.