Another chapter has been written in the saga on auction-rate securities – and this time it’s a win for institutional investors. On Feb. 13, the Financial Industry Regulatory Authority (FINRA) ordered the Credit Suisse Group to pay STMicroelectronics NV more than $406 million to settle claims that the brokerage misled the semiconductor maker into buying auction-rate securities.
FINRA’s ruling may well provide additional legal fuel to kick start future auction-rate settlements, with institutional investors more likely to file claims and lawsuits for their own losses in the investments. Said Thomas Hargett, a partner at Maddox Hargett & Caruso PC, in a Feb. 13 article by Reuters:
“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.”
In total, the FINRA arbitration panel ordered Credit Suisse Securities to pay $400 million in compensatory damages, and more than $6.6 million in legal costs, financing fees and interest.
STMicroelectronics’ win against Credit Suisse is the biggest ARS award to date for an investor not covered by last year’s regulatory settlements.
According to the Feb. 13 ruling, STMicro initially instructed Credit Suisse to invest in student-loan securities backed by U.S. government guarantees. Instead, Credit Suisse brokers invested into high-risk collateralized-debt obligations (CDOs), many of which turned out to be backed by toxic subprime real-estate loans. When the housing market ultimately collapsed, those CDOs plunged in value.
STMicroelectronics (NYSE: STM) is an Italian-French electronics and semiconductor manufacturer headquartered in Geneva, Switzerland.
To date, STMicroelectronics has been forced to take a $75 million charge stemming from losses tied to auction-rate securities.