A lawsuit brought by the state attorney general's office against Charles Schwab & Co Inc had been revived by a New York state appeals court. The lawsuit claimed that the brokerage firm fraudulently marketed auction-rate securities. New York's Appellate Division unanimously voted on reviving the lawsuit brought by former New York Attorney General Andrew Cuomo in 2009 as there were sufficient evidence to warrant a trial on two claims brought under the Martin Act.
The Martin Act, a 1921 securities law, does not require the New York's attorney general to prove intent before prosecuting for fraud. The law's broad definition of fraud extends to acts that "tend to deceive or mislead" the public.
Auction-rate securities are long-term debt similar to bonds whose interest rates reset periodically through auctions. The banks that handled the auctions abandoned the USD330 billion market in February 2008 and prompted the market to a collapse. Thousands of Schwab's customers held about USD787.9 million of auction-rate securities as of February 13, 2008, as estimated by Cuomo's office back in 2009. Citigroup Inc, UBS AG, Bank of America Corp's Merrill Lynch and others agreed to repurchase more than USD60 billion in debt to settle the claims.
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