New York state’s attorney general, Andrew Cuomo, is said to be likely to file a lawsuit — possibly today –against Charles Schwab alleging civil fraud related to the brokerage firm’s marketing and sales of auction-rate securities, according to the Wall Street Journal. The move has been expected since Cuomo told Charles Schwab last month that it would face a lawsuit unless it agreed to a settlement that included buying back the securities from investors. No settlement has been announced, and Schwab maintains 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,” a Schwab spokesman said. Schwab has denied allegations that anyone at the firm could have foreseen the auction-rate securities market’s impending calamity. 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. Cuomo is expected to file as part of the lawsuit transcripts of recordings between Schwab brokers and customers that he alleges show how the brokers misrepresented of auction-rate securities as easy-to-sell alternatives to cash. The attorney general also contends that Schwab failed to train brokers about the risks involved.
Cuomo To File Lawsuit Against Schwab for Client Losses from ‘Toxic’ Securities
The company has blamed its clients’ losses on large Wall Street underwriters of the auction-rate securities.
August 17, 2009