Tuesday, April 8, 2008

Suntrust Bank Sued over Sale of Auction Rate Securities

A group of investors filed a class action suit on April 1, 2008 alleging that SunTrust Banks Inc. sold them auction-rate securities as highly liquid cash-management vehicles and alternatives to money-market mutual funds. The meltdown of the auction-rate securities market has left investors hot under the collar, with many charging their brokerage firms of deceptive marketing practices.

SunTrust Banks is the latest financial firm to face litigation over the auction-rate securities debacle. Following the recent collapse of the auction market, similar suits have been filed against Citigroup, Merrill Lynch, Morgan Stanley, and UBS. Auction-rate securities are either municipal or corporate debt securities or preferred stocks that pay interest at rates set at periodic auctions. The securities generally have long-term maturities or no maturity dates.

The SunTrust suit is just the tip of the iceberg. Investors who filed the suit against SunTrust claim the collapse of the auction rate securities market has left them unable to access their capital and with the auction-rate securities market in a perpetual state of deep freeze, more investors who were steered by their brokers to auction securities as safe, liquid investments and who have now lost their entire life savings could likely step forward with class action suits of their own.

No comments: