I caught a blog entry on naked capitalism that reminds me of the impending wave of lawsuits associated with the credit crunch. It seems that investment banks were peddling auction rate securities to retail investors while warning the issuers themselves of an impending implosion in the market. This is the kind of thing that is sure to generate lawsuits.
The Bloomberg article naked capitalism sites starts off:
Yanping Cui, 57, says she invested in auction-rate bonds last December at the urging of a broker at UBS AG in Long Beach, California. The same month, UBS told one of the issuers of those securities, a New Hampshire student-loan agency, that the $330 billion market was in danger of failing.
-ummm….. can you say class-action? I warned about the impending lawsuit wave in this market in particular after I caught a lawsuit filed against Royal Bank of Canada a few weeks ago.
Royal Bank of Canada joins the list of financial institutions sued by clients over the large losses associated with the credit crisis.
Royal Bank of Canada has been hit with a proposed class action lawsuit in New York alleging that it told clients that auction rate securities were safe short-term investments for anyone with at least $25,000 in available cash.
The auction rate market froze earlier in the year and issuance has since plummeted. (On a side note, Warren Buffett has confirmed he has used this market dislocation for.)
Going forward, expect to see a lot of lawsuits a la 1990s Orange County – Robert Citron. It’s just getting started.
I’d actually say that the lawsuit wave that will hit the courts is going to be a veritable Tsunami of legal action from disputing who has the right to repossess a home, who is on the hook for losses in a CDO portfolio to the typical Wall Street habit of saying one thing to investors and another thing behind closed doors.
Washington wants in on the blame game too. The arrest of the Bear Stearns hedge fund duo this past week marks the ‘gloves off’ move in Washington as well. Scapegoats are needed and I guarantee you more ‘perp walks‘ are coming.
Wall Street Sold Auction-Rate to Investors as It Warned Issuers, Bloomberg News, 26 Jun 2008
Ex-Bear Stearns Fund Managers Indicted for Fraud, 19 Jun 2008
Wall Street Sold Auction-Rate to Investors as It Warned Issuers, naked capitalism, 26 Jun 2008