New York Attorney General Andrew Cuomo filed a lawsuit today against The
Charles Schwab Corp., claiming the brokerage firm misled customers about the safety of auction rate securities — and the firm is digging in for a fight.
“The [attorney general’s] lawsuit casts blame for a bad situation in the wrong direction. Clients who purchased these products, and companies like Schwab that filled client orders, were misled by the major Wall Street underwriters who concealed the degree to which the auction rate securities market was so dependent on their support, Schwab spokeswoman Sarah Bulgatz wrote in an e-mail.
“Up until the time the auction rate securities market collapsed, there was an uninterrupted 20-plus year period where there was no indication the market for these securities was at risk of collapse and that the underwriters would simply abandon them. We’re confident that we will prevail when we have the chance to expose the workings of this market completely rather than just through selective sound bites in the press,” she wrote.
“We believe the NYAG ought to focus its efforts on the firms that underwrote these products, failed to disclose the key risks and then abandoned the products, rather than damaging the reputation and harming the shareholders of other companies that acted in good faith,” Ms. Bulgatz wrote.
The battle became public a month ago when TD Ameritrade Holding Corp. of Omaha, Neb., agreed to buy back $456 million of auction rate securities from individual investors, charities and small-business clients.
On the day of the TD Ameritrade settlement involving the Securities and Exchange Commission as well as state regulators in New York and Pennsylvania was reached, Mr. Cuomo's office accused Schwab of misleading investors about ARS and threatened prosecution.
This morning, Schwab of San Francisco responded to reports that a lawsuit was imminent by posting a letter on its website from last month responding to the AG office's allegations.
Representatives for Mr. Cuomo's office did not immediately respond to a request for comment.
