"People who bought auction rate securities from those firms are filing arbitrations," Nygaard says. "Companies that sold a lot of auction rate securities but have not entered into any kind of global settlement include Morgan Keegan, which is run out of Memphis but is a national broker-dealer, E*Trade, Ameriprise, Thomas Weisel, TD AMERITRADE, Wedbush Securities, Raymond James and many regional banks and smaller brokerage firms. People who still have auction rate securities not redeemed by issuers—sold by these firms—should file their arbitration."
Other companies that have not fully settled (or who have not compensated everyone) are UBS, Merrill Lynch (now owned by Bank of America), Wells Fargo, Wachovia (A G Edwards) and Morgan Stanley. Some of these companies have settled with current clients to whom they sold auction rate securities, but those global settlements excluded people who moved their accounts elsewhere. For example, a client may have purchased auction rate securities from Merrill Lynch but moved the account because they were unhappy. That client would not have received a settlement, even though he was given the same fraudulent information when he purchased his auction rate securities. That client will have to file an arbitration to get relief.
Clients with auction rate securities may wonder if they can prove that they were misled into purchasing the securities. The truth is that some broker-dealers have already been fined by the government for misleading investors, so it is well documented that companies made fraudulent statements when selling auction rate securities. In fact, Wachovia was recently fined $4 million by Texas for misleading investors about the safety of auction rate securities. In other words, many people say they were misled when they bought their auction rate securities and the government is backing them up.
"The other thing that happened last week is that the UBS class action lawsuit was dismissed by a judge," Nygaard says. "Anybody who has not been compensated by UBS for auction rate securities bought at UBS will not get money from the class action. It is now dead. And, given the way the judge wrote that opinion, it means, in my best estimate, that probably the other broker dealers who sold auction rate securities will probably win dismissal of their class actions."
According to Nygaard, the Court held that as long as a firm agreed to compensate most investors, a class action should not proceed. In such cases, investors still holding auction rate securities should file individual lawsuits or arbitrations. Of course, since most brokerage firms require customers to sign arbitration agreements, most cases will have to go to arbitration.
People who were involved in such class action lawsuits can still file an arbitration. However, they are advised to do so as soon as possible because the number of arbitrations filed will likely increase as more class action lawsuits are dismissed. The sooner an arbitration is filed, the sooner the case will be heard.
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"In my opinion, clients should go to arbitration now rather than waiting for the class action lawsuit to be dismissed," Nygaard says. "Get in line, because the market deterioration means that a lot of arbitrations are being filed. People who have not [had their auction rate securities] redeemed, given that the class action route is probably not going to work for them, need to file an arbitration. Do not wait around because class actions probably will not help."