Nuveen, Merrill and Citi slapped with suit over auction rate losses

A former securities lawyer has zeroed in on these three firms, as well as Deutsche Bank and Mesirow Financial, over $2 million in ARS losses that he and his wife allegedly sustained

Aug 26, 2009 @ 3:44 pm

By Darla Mercado

A 77-year-old retired securities attorney and his wife are taking Nuveen Investments Inc., Merrill Lynch & Co. Inc., Citigroup and others to court over $2 million in losses they claim to have suffered from investing in auction rate securities.

Joan and Howard Kastel, who works part-time as a consultant, arbitrator and mediator, filed a suit last Friday in the U.S. District Court for the Middle District of North Carolina against Nuveen of Chicago; Merrill of New York; Mesirow Financial Inc. in Chicago; Deutsche Bank AG of Frankfurt, Germany; New York-based Citigroup Global Markets and Robert P. Bremner, chairman of Nuveen's North Carolina Funds.

According to the suit, in August and September 2007, Mesirow bought 88 shares of auction rate preferred securities for the Kastels' accounts, paying $25,000 per share.

Those shares were issued by three Nuveen North Carolina funds through Nuveen Investments LLC, the Chicago-based broker-dealer, at auctions that were held by Deutsche Bank.

Merrill and Citigroup were also auction participants, according to the suit.

Auction rate securities, debt instruments whose interest rates were periodically reset at auctions, had been widely marketed as safe and liquid investments.

However, when the $330 billion auction rate securities market froze in February 2008, investors were unable to get their cash.

The Kastels say they are now stuck with 85 shares of Nuveen North Carolina ARPS, which pay “unconscionably inadequate” interest that “does not fairly compensate” the couple, according to the suit.

They are suing for at least three times the amount withheld from them — about $6 million — from Mesirow, Nuveen and Nuveen North Carolina funds, and also want to be compensated for their emotional distress.

Rather than take the case into arbitration, the couple has decided to sue, arguing in their complaint that the case would be too complex for arbitration.

Nuances include the fact that Mesirow may have cross claims against other named defendants in the suit.

Also, they allege theft by deception and obtaining property under false pretenses, which are violations of North Carolina's criminal laws and are not subject to arbitration.

The defendants also violated securities laws in North Carolina and Illinois, according to the suit.

Mesirow spokeswoman Julie Liedtke said that the firm does not comment on pending litigation.

Nuveen spokeswoman Kristyna Sujata said the firm had no comment on the lawsuit.

Calls to Citigroup, Merrill Lynch and Deutsche Bank were not immediately returned.


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