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NY Attorney General Targets Schwab With Civil Fraud Lawsuit

Charles Schwab, the “Talk to Chuck” online brokerage firm, has the ear of New York Attorney General Andrew Cuomo. A July 20 article in the Wall Street Journal is reporting that Cuomo warned Schwab on July 17 of his plans to sue the company for civil fraud over its marketing and sales of auction-rate securities to individual and institutional investors.

In the letter sent Friday, the New York Attorney General said he will move forth with the lawsuit unless Schwab agrees to buy back the auction-rate securities from investors. 

Last summer, many of Wall Street’s major investment firms, including Citigroup, Merrill Lynch, and UBS, agreed to repurchase more than $50 billion in auction-rate securities to avoid state and federal charges that they misrepresented the instruments as conservative, liquid investments. In February 2008, the $330 billion market for auction-rate securities came to an abrupt standstill, after the banks and investment firms that once managed the auctions suddenly backed out of the market.

As a result, thousands of retail and institutional investors were unable to sell their securities.

According to the Wall Street Journal article, e-mails and testimony cited in Cuomo’s July 17 letter to Charles Schwab show brokers had little idea of what they were actually selling to investors and then later failed to tell clients that the auction-rate market was on the verge of collapse.

One thought on “NY Attorney General Targets Schwab With Civil Fraud Lawsuit”

  1. Rossana Says:

    This is the 1st place I read any points around this. Who requires to blow off time reading the day-old SF Chronicle or New York Times? Their bountiful reporters’ bias is a great deal worse than the previous “dead tree” media.

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