The Charles Schwab Corporation
) has been burdened with the auction-rate securities lawsuit
again, after a New York state appeals court revived two of the
four charges in the suit. Though the lawsuit was filed by the New
York State's Attorney General (AG) Office in 2009, a trial judge
in Manhattan had dismissed it in 2011.
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In 2009, the AG Office had accused Schwab of indulging in
fraudery while marketing and selling the securities. Allegedly,
the company had wrongly claimed that auction-rate securities were
safe and that they were liquid investments.
While reviving the case, the New York's Appellate Division
commented that the state had given adequate proof to warrant a
trial on two claims that were under the purview of the Martin
Act. Further, the charges related to the company's conduct prior
to Sep 2007 (the first failure of auction-rate securities sold by
Schwab) were revived as well.
Additionally, the lawsuit demands Schwab to buy back auction-rate
securities from investors and pay restitution and civil fines.
Notably, Schwab plans to defend its position in the court. The
company stated that approximately 98% of auction-rate securities
have been redeemed at par. Further, the company denied providing
any additional incentives to its registered representatives for
selling auction-rate securities.
Very few firms had acted in a manner similar to Schwab and
challenged the AG Office charges. Other firms including
) and Merrill Lynch, the brokerage division of
Bank of America Corporation
) had agreed to settle charges and repurchase more than $60
billion worth of auction-rate securities.
Currently, Schwab carries a Zacks Rank #3 (Hold).