KEY POINTS:
The most powerful retail brokerages in the United States are waging war against Wall St's big investment banks over the auction-rate securities misselling scandal.
The brokerages say it was not they who misled their clients but the underwriters on Wall St who misled them.
When the US$330 billion ($466.4 billion) market for auction-rate securities collapsed in February under the weight of the credit crisis, millions of people who had been told their investments were the equivalent of cash found that they could not sell them.
Andrew Cuomo, the New York attorney-general who inherited the anti-Wall St crusade of Eliot Spitzer, has brought or threatened legal action against many brokers and is investigating dozens of companies, including famous names such as Charles Schwab and Fidelity.
He has wrung fines totalling hundreds of millions of dollars from firms including Citigroup and UBS, who acted both as underwriters for the securities and as brokers, selling them to their clients. Last week he said he expected to bring suits against firms that just acted as brokers, too.
His settlements have typically involved brokers agreeing to buy back the securities from their clients.
An auction-rate security is a bond whose interest rate is not fixed but set at a weekly or monthly auction, when existing holders can sell the bonds.
Since the Wall St banks stopped acting as buyers of last resort almost 60 per cent of auctions have failed.
- INDEPENDENT
