- The Washington Times - Tuesday, August 18, 2009

NEW YORK | New York Attorney General Andrew Cuomo filed a lawsuit Monday against the brokerage unit of Charles Schwab Corp., asserting that the firm misled customers about the safety of auction-rate securities.

Mr. Cuomo’s office has been at the forefront of pushing brokers and underwriters of auction-rate securities to repurchase them from investors who were left with steep losses after the market for the investments collapsed in early 2008.

The suit against Schwab is aimed at forcing the retail brokerage firm to repurchase the securities at face value from investors.

The auction-rate-securities market involved investors buying and selling instruments that resembled corporate debt, with interest rates that were reset at regular auctions, some as frequently as once a week. They were sold as being as safe as cash, but the market for them fell apart last year amid the downturn in the credit markets.

Last month, Mr. Cuomo’s office notified San Francisco-based Charles Schwab that it was planning to file the suit against the retail brokerage firm for claiming the securities were safe investments while selling them.

Earlier Monday, Schwab released the letter it sent to Mr. Cuomo’s office in response to the warning about the impending lawsuit. In the letter, Schwab’s outside counsel said the brokerage firm itself, like its customers, was misled by the underwriters of the securities.

Over the past year, Cuomo’s office has brokered more than a dozen settlements with other firms that wrote or sold the securities. Counting those settlements and others elsewhere across the country, more than 20 firms have agreed to repurchase $61 billion in the investments, according to the attorney general’s office.

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