ATLANTA (CN) – SunTrust Banks and SunTrust Robinson Humphrey are the latest to face a federal class-action complaint of selling auction rate securities by misrepresenting them as liquid, short-term equivalents to money market funds. Investors say the defendants “failed to disclose that ARS were only ‘liquid’ because they and other broker-dealers created an artificial market for ARS which would dry up as soon as these broker-dealers decided to remove themselves from the auction process.”
The complaint continues: “Defendants also failed to disclose that at times during the Class Period they purchased ARS for their own account to avert auction failures, and that, but for their intervention a great deal of these auctions would have failed.”
As a result, plaintiffs say, they find themselves stuck with 30-year bonds that pay little over 3 percent annual interest, though SunTrust sold them as short-term securities.
In language similar to that in similar complaints against a slew of other defendants around the country, the plaintiffs say: “Instead of disclosing the true nature of ARS and the substantial liquidity risks associated with them, Defendants continued to push as many ARS as possible onto its customers in order to unload the inventory of their already troubled balance sheet. After unloading millions of dollars worth of ARS by means of a rigged auction market, on or about Feb. 13, 2008, Defendants and other broker-dealers simply stopped participating in ARS auctions and walked away entirely. As a result, thousands of investors who thought they were holding highly liquid investment purchased from the Defendants are now saddled with long term securities they cannot sell.
“Investors have no prospect of ever selling their securities through the auction market which has not been exposed as manipulated and artificial. The only chance for investors to sell their ARS and to achieve liquidity is to take a ‘haircut’ and sell their securities at a substantial discount to par value.”
Plaintiffs’ lead counsel is Holzer Holzer & Fistel.
A similar class-action, against E*Trade Financial Corp. and E*Trade Securities, has been filed in Manhattan Federal Court.