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Auction Rate Securities "Class Action is Dead"

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Kansas City, MOIf you have been waiting for a class action lawsuit to compensate you for money lost in Auction Rate Securities it might be time to consider filing an arbitration. According to Diane Nygaard, founder of the Nygaard Law Firm, it appears that class action lawsuits will not help clients who had money in the auction rate securities market. Unfortunately, there are still firms who have not entered into a global settlement with their auction rate securities clients, leaving those clients without their money.

Diane Nygaard"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.

Arbitration has been a good way for clients to recover their lost money. Nygaard notes that her firm has been filing arbitrations for over a year against UBS, Ameritrade, E Trade and many regional banks and brokerages. She says they have been successful in recovering peoples' par value and attorney's fees and, where appropriate, consequential damages that resulted from the frozen auction rate securities market.

"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."

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