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Recent Cases: Local charity recovers approximately $10 million. |
Beginning in 2003, a Regional Brokerage recommended that a local charity invest almost all of its working capital and cash equivalent assets in certain auction rate securities (“ARS”) that it was underwriting. The charity was told that these securities were “alternatives to money market funds and other short-term high grade investments” in which it had previously invested its operational funds. The charity accepted the Brokerage’s recommendation and by early 2008, had almost $10 million invested in these securities. However, as the charity learned in 2008, the market for these ARS had collapsed and they likely could not be sold for approximately 26 years. The charity also learned that the ARS were packaged in collateralized debt obligations made up of subordinated bank debt in regional banks such as IndyMac. In short, the securities were illiquid, high risk and deteriorating in value -- which was in direct contradiction to the Brokerage’s repeated representations as well as the charity’s investment objectives. The Firm recovered the charity’s entire principal investment of approximately $10 million. The case was handled by Ed Dovin and Sandra Malkin. |
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