Cuomo takes shot at Schwab
Attorney General Cuomo says financial services firm misrepresented auction rate securities to investors.
NEW YORK (CNNMoney.com) -- New York Attorney General Andrew Cuomo filed a lawsuit Monday against Charles Schwab Corp., accusing the brokerage firm of selling certain financial products to investors without revealing the risks.
According to a statement released by Cuomo's office, Schwab (SCHW, Fortune 500) brokers provided investors with "a false sense of security that their investments would always be liquid when auction rate securities, in fact, faced significant, inherent liquidity risks."
Auction rate securities are long-term corporate or municipal bonds that are sold at weekly or monthly auctions. The market for these securities collapsed last year, preventing investors from withdrawing or selling.
The Cuomo-Schwab lawsuit is the latest action from investigators across the country, who have clamped down on ARS investing in recent months. Finance firms have been forced to buy back hundreds of millions of dollars worth of auction rate securities from investors.
Cuomo, in a statement, said his investigators had taped recordings of Schwab brokers assuring their investors that the auction rate securities were a liquid, short-term form of investment. But these claims were false, according to Cuomo, who is seeking to force Schwab to buy back the securities from investors.
"This filing should send a signal that anyone in the industry who misrepresented the risks of investing in auction rate securities will be held accountable," said Cuomo, in a written statement.
Schwab's press office did not immediately return a message after the lawsuit was announced. Prior to the filing, Schwab released a letter, written in July, that described the pending lawsuit as "unwarranted."