Auction Rate Securities Cases Better Off in Arbitration

Floyd Norris of the New York Times has a piece in today’s paper about the legal hurdles facing plaintiffs in court actions related to auction rate securities. He writes about the Private Securities Litigation Reform Act (PSLRA) pleading requirements when filing a fraud claim in a securities litigation. A plaintiff must allege very specific allegations of fraud or risk getting tossed out on a pre-trial motion dismiss. Tough hurdle.

Luckily, most of the auction rate securities cases have been filed as arbitrations at FINRA. The PSLRA pleading requirements do not apply. And there is a very small chance that a claimant in a FINRA arbitration will have his case knocked out by a pre-hearing motion to dismiss because FINRA recently changed its rules severely limiting the grounds to file such a motion.

The upshot is that if you’re an investor, whether retail or institutional, and you’re stuck holding an auction rate security that was misrepresented to you as a cash equivalent, your best bet is to file an arbitration at FINRA. It’s private, less costly than a court litigation, and should resolve between 12 and 18 months. We represent auction rate investors worldwide. Also, PIABA, a bar association of attorneys who specialize in representing investors, is a good place to find counsel. The auction rate securities fiasco has been a huge burden on small and large conservative investors. Securities arbitration seems to be the only intelligent solution.

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