Claims and Bad Faith Law Blog

Auction-Rate Bond Sellers, Fiduciary Duties, And the States.

 Auction-Rate Bond Marketers Are Buying The Bonds Back Rather Than Pay Potentially Much Greater Penalties in Proceedings Pursued by State Regulators.   

    One-time sellers of Auction-Rate Bonds are buying them back rather than face paying penalties.  The reason these former salespeople are acting this way is that previously they arguably acted like people who had fiduciary duties but may have breached them, at least according to allegations filed against them by many State regulatory agencies across the United States.

    Regulators of the sellers have launched investigations across the nation.  These local governmental investigations are resulting in settlements by which the sellers reduce their potential penalties exposure in return for protecting the people and local goverments to which they rather aggressively sold these securities.  Allegedly, the once-upon-a-time sellers kept selling Auction-Rate Bonds even after the market dried up for them -- in a niche market.  That means that, allegedly, the sellers knew the conditions of that unique market and most buyers did not.  Interview With Massachusetts Secretary of State William F. Galvin, "Still Sorting Out The Auction-Rate Mess/Galvin's Office Addresses Conflicts" (Boston Globe Online, Sunday, August 31, 2008).

    That would mean, it appears from these allegations, that the marketers occupied a superior position compared to the potential buyers, and that the marketers were acting on behalf of the buyers but instead preferred their own (sellers') interests to those of the people and entities for whom they were supposed to be acting.

    To offer a helpful definition here, adding to past posts about Auction-Rate Bonds and other types of Bonds which drew Bond Insurance Policies, Auction-Rate Bonds "are investment notes or securities or bonds -- financial commitments" which were treated like cash because they could be bought and sold with ease in their heyday.  This "high degree of liquidity" came from "a process of periodic rebidding."  Id.  The rates of Auction-Rate Bonds and Securities were regularly reset at auction, in basic and simple terms.

    Conflicts of interest are at the heart of investigations into the sale and purchase of other securities, such as Mortgages, and the sale and purchase of commodities, such as oil, wheat and cotton.  "There's not adequate supervision," says Secretary Galvin.  "We're all committed to a free market economy.  But a free market only works when it's truly free and it's not rigged."  Id.

    Please Read The Disclaimer.

Expert Witnesses Testifying on Reasonable Conduct, Other Financial/Law Issues.

    Do you pay your Expert Witnesses $1,000 an hour?  Summaries in the newspapers of recent studies reflect that Expert Witnesses often charge that much.  Here is a handy link here.  This report uses many of the studies as resources.

    It is interesting that in 1 out of 3 lawsuits, Expert Witnesses testify at Trial in Federal Court about the "reasonableness of a party's actions" and other "business/law/financial" issues, as reported by studies of Federal Civil Trials and surveys of Federal Trial Judges across the nation.  More such issues are likely to be presented as the financial crisis deepens.

Please Read The Disclaimer.