The last couple of weeks have seen numerous announcements concerning major brokerage firms agreeing to buy back billions of dollars worth of outstanding auction-rate securities to settle regulatory investigations. According to an article in the Legal Times by defense lawyers Michael Rivera and Erik Frias of the Fried Frank law firm, these agreements may effectively shut down pending and future private litigation on behalf of auction securities investors by making investors whole.
The article argues that “the losses of individual investors who might be plaintiffs will now be fully compensated, leaving little to no damages to pursue in court” as investors will be compensated at the price at which they bought the securities. In addition, any customers who sold their auction-rate holdings below par value after the market collapse will also be compensated for their loss. This may render plaintiffs unable to prove damages in a private action.