Sense on Cents

Oh, to be a fly on the wall at Raymond James.

I can only imagine the wailing and gnashing of teeth by Raymond James managers as the firm loses another auction-rate securities ruling. Do you think Ray Jay’s managers are privately cursing out their own legal teams and the judges handing down some recent rulings against the firm? Major developments are breaking in the world of auction-rate securities, and the actions center on Raymond James. Let’s revisit a story I highlighted in late August.

At that time, I wrote Raymond James Taking Center Stage in ARS Tragedy:

Although the entire financial industry would clearly hope it could wake up from the nightmare known as auction-rate securities, the fact is this ongoing saga is no bad dream but a very real tragedy. Which player seems to be taking center stage in this ongoing epic disaster? Enter stage right, Raymond James.

A month ago, we witnessed in a WSJ review, Raymond James Ordered to Buy Back Auction-Rate Securities:

An arbitration panel ordered two units of Raymond James Financial Inc. to buy back $2.5 million in auction-rate securities from an investor.

Aside from the award, the most interesting element of this ‘act’ is the fact that:

Raymond James was still advising him to buy auction-rate securities into February 2008, when the auction market froze, and made one purchase the day after that occurred, Mr. Merdinger alleged. The market for auction-rate securities remains frozen, leaving many investors stranded.

Copies of emails that were considered during the proceeding allegedly showed that Raymond James financial managers knew there were problems in the auction-rate market well before it failed, according to Lawrence Byrne, a securities lawyer in Chicago who represented the investor.

Smoking gun perhaps? What exactly are in those e-mails? Think a whole host of other auction-rate securities holders might like to know? You think? Did those e-mails play a role in another Raymond James led auction-rate performance? When the curtain rose yesterday, the WSJ “reviewed” a similar play but with a twist entitled, Raymond James Forced to Buy Back Securities:

Raymond James & Associates Inc. and one of its brokers must buy back $925,000 in auction-rate securities from a Texas-based couple, a securities arbitration panel has ruled.

Were these individual cases truly nothing more than off-Broadway one act plays setting the stage for a Broadway blockbuster presentation?

Well, stay tuned as it appears that the smaller productions have, in fact, laid the groundwork for a potential major hit. How so? Can you say class-action? Thank you to a regular reader of Sense on Cents for sharing a Bloomberg BusinessWeek story, Raymond James Auction-Rate Lawsuit Is First to Be Upheld:

Raymond James & Associates must face a lawsuit claiming it defrauded buyers of auction-rate securities, the first class-action complaint over the instruments to be upheld in the wake of the market’s collapse.

At least 19 underwriters and broker-dealers were sued in class-action, or group, suits since the $330 billion market for auction-rate securities cratered in February 2008. At least eight financial firms, including Citigroup Inc. and Deutsche Bank AG, got complaints tossed when judges ruled they didn’t meet pleading requirements. In some cases, the investors were allowed to refile complaints with more detail.

U.S. District Judge Lewis A. Kaplan in New York upheld part of the complaint against the unit of St. Petersburg, Florida- based regional brokerage Raymond James Financial Inc., allowing the case to move to the discovery, or evidence-gathering, stage.

“A trier of fact would be entitled to find that it would have been important to a reasonable investor, in deciding whether to buy or sell ARS, that the ARS — supposedly liquid investments — were liquid only because auction brokers routinely intervened in the auctions to ensure their success,” Kaplan wrote in his Sept. 2 opinion. “RJA was under a duty to disclose this information.”

Kaplan tossed an earlier complaint in the case.

Was Raymond James doing anything differently than any other bank or money manager? Not from stories and reviews that I have seen. That said, two wrongs never make a right. Raymond James and every other entity engaged in the marketing and distribution of auction-rate securities should be compelled to offer sworn testimony in the process of providing full disclosures and total transparency. America needs more judges who will make that call, pursue the total truth, and allow justice to be served. Transparency and disclosures are the great truth serums. Raymond James specifically and Wall Street at large need to appreciate that.

Larry Doyle

Related Sense on Cents Commentary
Sense on Cents/Raymond James
Sense on Cents/Auction-Rate Securities

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

This entry was posted on Thursday, September 9th, 2010 at 6:20 AM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.