New York state’s attorney general, Andrew Cuomo, has chosen Charles Schwab as his next target. Cuomo is expected to file a lawsuit today alleging civil fraud relating to Schwab’s marketing and selling of auction-rate securities.
Investors lost billions when the market for these securities collapsed in early 2008. Several banks, including Goldman, Citibank and UBS, have previously agreed to buy back more than $60 billion in auction-rate securities from their clients.
The Wall Street Journal has seen a copy of the proposed complaint. Some of the evidence presented involves recorded phone calls in which Schwab brokers allegedly represent auction-rate securities as being easy to sell cash-alternatives, the WSJ said.
Like the Bank of America emails or the Enron “burn, baby, burn” phone calls, the sexiest part of the complaint is always the primary source material.
WSJ: The attorney general also contends that Schwab failed to train brokers about the risks that the auction-rate securities market could stop functioning, locking up people’s money for years.
In one exchange between a Schwab broker and client that was reviewed by the Journal, a customer says: “You know, I’m not trying to make a ton of money. I just want to play it safe.” The broker responds: “The hardest part of this auction is getting into it. That is the tough part. Getting out is easy as just selling.”
Charles Schwab has not seen the complaint, but called Cuomo’s approach “inconsistent with the law.”
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.