Charles Schwab, Fidelity, and Other Downstream Brokerages are Subpoenaed as NY Attorney General Cuomo’s Auction-Rate Securities Probe Expands

As part of his widening investigation into the auction-rate securities market collapse, New York Attorney General Andrew M. Cuomo has subpoenaed Charles Schwab, Fidelity, E*Trade Financial, TD Ameritrade, Oppenheimer & Co., and other ‘downstream’ brokerages that sold the securities to clients even if they did not underwrite them.

The Regional Bond Dealers Association had told Cuomo, in an August 15 letter, that entities that sold ARS to its clients but had nothing to do with managing their issuance should not be made to repay clients back at par illiquid the way financial services firms, such as Citigroup Inc., Morgan Stanley, Wachovia Corp, JP Morgan Chase and Co, UBS AG, and Goldman Sachs Group Inc., are now required to do, so per their settlements with federal and state regulators. The RBDA says downstream brokerages did not know that ARS were illiquid, rather than “highly liquid cash equivalents” that many Wall Street firms presented them to be.

The NY AG Special Assistant Benjamin Lawsky, however, says that the downstream brokerages’ culpability will depend on what their probe reveals. He says the NY AG’s probe has already discovered some “disturbing facts” that contradict the downstream brokerages’ claims of innocence.

Federal and state regulators have maintained that financial firms told their clients that ARS were highly liquid and easily redeemable at auctions. The ARS auctions started failing in February, which made it impossible for investors to sell their securities. Many investors have been unable to recoup their investments since then.

Related Web Resources:

Read the RBDA’s August 15 letter to NY Attorney General Cuomo and SEC Chairman Cox (PDF)

Auction-rate securities probe expands to nearly 40 brokerages, Los Angeles Times,
August 22, 2008
Regional Bond Dealers Association

NY Attorney General Cuomo’s Office

Contact the stockbroker fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP today for your free consultation.

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