Auction Rate Securities, Credit Suisse and other Brokerage Firms

Investors have been successful in winning awards in arbitration against Credit Suisse and other brokerage firms after sustaining billions of dollars in losses when the market for auction rate securities froze in 2008. Auction rate securities (ARS) are fixed-income debt instruments – typically municipal bonds, preferred shares of closed end mutual funds, or asset-backed securities collateralized by student loans or mortgages – for which the interest rate is regularly reset through an auction process. ARS were once marketed as safe, cash equivalents that were highly liquid. However, auctions froze up in February 2008 because the broker-dealers who had previously propped up the market by bidding in their own auctions were no longer inclined to invest in them. As a result, many investors have been unable to cash out even at a loss, and investors who were led to believe that they were purchasing a liquid cash equivalent have learned that there is no liquidity at all. Others have been forced to take steep losses by selling at a discount in a limited secondary market.

Since the market collapsed, there have been many regulatory settlements with broker-dealers. Certain investors have been able to redeem their ARS at par, but many of those investors have made claims for consequential damages caused by the loss of liquidity. Many more investors have still not achieved liquidity, however, because the broker-dealers who sold them their ARS were not party to the regulatory settlements. Other investors were not eligible under the terms of the settlements, which primarily benefited individual “retail” investors. Some investors who have been unable to redeem their securities have been able to sell them in a limited secondary market, forcing them to take substantial losses.

nvestors have had success in arbitration recovering losses related to ARS. In one notable case, STMicroelectronics won a $431 million award against Credit Suisse in a case involving auction rate securities. In another case, Catalyst Health Solutions won a $9.8 million FINRA arbitration award against Credit Suisse in connection with student loan-backed auction rate securities. In addition to Credit Suisse, many investment banks and brokerage firms have entered into settlements with regulators since the market collapse. Please do not hesitate to contact us today to discuss your potential claim against Credit Suisse or any other brokergage firm. Securities litigation of this kind is highly complex. The attorneys at Napoli Bern Ripka have been successful litigating hundreds of cases involving investment losses of this kind.