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.
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).
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