NY AG Slaps Schwab With Suit Over Defrauding Clients

By Jason Farago,  Newser Staff
Posted Jul 20, 2009 5:44 AM CDT
New York Attorney General Andrew Cuomo has written to Charles Schwab to inform them he will sue the brokerage for civil fraud.   (AP Photo/Louis Lanzano, File)
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(Newser) – The New York attorney general has told Charles Schwab he will sue the brokerage for civil fraud over its marketing of securities to clients, reports the Wall Street Journal. Andrew Cuomo alleges that Schwab's brokers had little understanding of the financial instruments and then failed to inform clients that the market for them had tanked. One broker cited by the AG said, "On whatever measuring scale my knowledge was pretty low."

The planned suit revolves around auction-rate securities, a short-term debt-backed instrument priced at periodic auctions. By early 2008 the market for them had collapsed, taking $330 billion along with it. Cuomo has told Schwab that he would consider a settlement if the brokerage bought back the securities from its clients, but Schwab said in a statement that the AG's charges "unfairly lay blame on our company for an illiquid market."