ARS Debacle Is A Win For STMicro; Credit Suisse Must Pay $400 Million
An arbitration award totaling $400 million is what the Credit Suisse Group will pay STMicroelectronics NV to settle claims that it misled the semiconductor maker into buying auction-rate securities.
The Financial Industry Regulatory Authority (FINRA) announced the ARS award, which is the biggest to an investor not covered by last year’s regulatory settlements, on Feb. 13. In addition to the $400 million award, a FINRA arbitration panel also ordered Credit Suisse to pay $3 million in attorney and expert witness fees, $1.5 million in financing fees, and interest on the original value of the auction-rate securities.
STMicroelectronics’ win against Credit Suisse could be just the tip of the iceberg on auction-rate settlements, as more companies may be compelled to file claims for their losses in the investments. Said Thomas Hargett, a partner at Maddox Hargett & Caruso PC, in a Feb. 15 article on Gulfnews.com:
“FINRA’s ruling is a clear signal that there are opportunities for corporate and individual investors to recover their losses from broker-dealers. The evidence is so compelling against the major broker-dealers that sold this garbage.”
According to the complaint STMicro filed with FINRA in August 2008, the company initially wanted to invest in student-loan securities backed by U.S. government guarantees. Instead, STMicro says Credit Suisse brokers invested into high-risk collateralized-debt obligations (CDOs), many of which were backed by toxic subprime real-estate loans. Following the collapse of the housing market, those CDOs plunged in value.
Credit Suisse and its ties to auction-rate securities also made headlines in September 2008, when a federal grand jury in Brooklyn brought criminal fraud charges against two former Credit Suisse brokers who sold more than $1 billion of auction-rate securities to STMicroelectronics and other investors.
Since then, STMicroelectronics has taken a $75 million charge stemming from losses tied to auction-rate securities.
The ARS ruling is one more black mark against Credit Suisse. On Feb. 5, Erin Callan, the former chief financial officer of Lehman Brothers Holdings, announced that she was taking an indefinite leave of absence from her position as head of hedge funds at Credit Suisse. Callan has been on the job for only five months.
Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
