The Work

July 21, 2009 7:07 PM

Mayer Brown on $456 Million TD Ameritrade Auction Rate Securities Deal

Posted by Julie Triedman

Better late than never. In a settlement with New York attorney general Andrew Cuomo announced Monday, TD Ameritrade, Inc., agreed to return some $456 million to roughly 4,000 customers who bought now-frozen auction rate securities.

By striking the deal, TD Ameritrade becomes the thirteenth company to reach an agreement with Cuomo's office in connection with the sale of auction rate securities. The others--downstream brokerage Fidelity Investments and 11 underwriting firms--settled their cases between late July and early September of last year. The TD Ameritrade settlement brings to $61 billion the total amount of investments recovered by Cuomo's office. 

Mayer Brown partner Richard Morvillo represented TD Ameritrade in its negotiations. 

No fine was imposed on the brokerage. Under the settlement, TD Ameritrade is to buy back the securities its customers have been holding since early last year, when trading in the flawed instruments suddenly came to a halt. Customers who sold the securities at a loss will get the difference between the sale price and par value, plus interest. The firm has until early October to repay retail investors with accounts of $250,000 or less and until March to pay back the rest.

Morvillo and a colleague, William Mann, also represent TD Ameritrade in a related securities class action brought by three firms, Seeger Weiss, Stueve Siegel Hanson, and Girard Gibbs. TD Ameritrade has moved to dismiss the suit, which alleges that the brokerage knowingly misrepresented the investments as safe. 

It is unclear how Monday's settlement will affect that litigation--or whether concerns about that litigation may have contributed to TD Ameritrade's decision to reach the settlement. As The Am Law Daily reported in March, a federal district judge in a similar class action against UBS dismissed the plaintiffs' case, concluding that, because the bank had already bought back the securities, there were on damages to claim.

Morvillo was not available for comment; lawyers for the plaintiffs did not immediately respond to calls or e-mails.

One other firm targeted by Cuomo's office, Charles Schwab & Co., has declined to settle. Cuomo announced Monday that his office intends to file fraud charges against Schwab by Friday if the matter is not resolved by then. Schwab told Bloomberg that the allegations were without merit. The company vowed to fight any charges.

Meanwhile, the Securities and Exchange Commission is pursuing another downstream broker, Morgan Keegan, with a new civil suit filed in federal district court in Georgia on Tuesday. The brokerage, the suit says, sold some $925 million of the securities just before the market froze.

"Morgan Keegan was clearly aware that the ARS market was deteriorating, but it went so far as to actually accelerate its ARS sales even after other firms' ARS auctions began to fail," said Robert Khuzami, director of the SEC's Division of Enforcement, in a release. "As we've done in our enforcement actions against other firms, the SEC is firmly committed to restoring liquidity to Morgan Keegan customers who purchased ARS."

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