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Auction-Rate Securities Class Action Tossed, but Plaintiffs Say Litigation Not Over Yet
The American Lawyer
April 01, 2009
We had a feeling this would happen. On Monday, Manhattan federal district court Judge Lawrence McKenna dismissed a class action accusing UBS of manipulating the market for auction rate securities (pdf). In his 17-page ruling, McKenna essentially concluded that because UBS had already bought back the auction-rate securities it marketed under an agreement with several state attorneys general, the plaintiffs had no damages case. "When plaintiffs elected to have UBS buy back their ARS at par value, they received a full refund of the purchase price," McKenna wrote. "Therefore, plaintiffs have already been returned to the position they were in before they purchased the ARS and before any fraud ensued."
Paul, Hastings, Janofsky & Walker partners James Wareham, William Sullivan and Howard Privette represented UBS in what's undeniably a big win for the bank that should have a ripple effect on pending securities class actions alleging market manipulation by other banks that sold auction rate securities. McKenna is the first judge to rule on a motion to dismiss one of these cases.
But co-lead plaintiffs counsel Daniel Girard of San Francisco's Girard Gibbs told the Litigation Daily that he's not giving up on the auction rate securities litigation. "Undoubtedly other courts will consider [McKenna's] ruling," he said. "We're not convinced other courts will rule the same way." (Other courts handling auction rate securities cases have already differed with McKenna on discovery questions; McKenna denied a plaintiffs motion for discovery in advance of what securities litigation rules call for, while Manhattan federal district court Judge Shira Scheindlin granted a similar discovery request in the case against Wachovia.)
Girard says the key to the auction rate securities litigation is plaintiffs whose securities were not bought back by banks -- a group that he said holds some $100 billion in illiquid securities. (Some banks did not reach buyback deals with state regulators, and some plaintiffs bought auction rate securities through resellers, such as e-Trade and Ameritrade, that did not buy them back.) Although there were no plaintiffs in the UBS case whose securities weren't repurchased, Girard told us he and his co-counsel, Stueve Siegel Hanson, plan to amend the complaint to add such plaintiffs. They have similar plans in cases against other banks as well. "Most of the litigation now concerns these downstream buyers," Girard said.
American Lawyer colleague Julie Triedman predicted back in October that the AGs' auction rate securities settlement spelled trouble for plaintiffs lawyers. "Those buybacks eased the damage suffered by the ARS investors," she wrote. "They also largely destroyed [the plaintiffs'] cases."
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
