Arbitrators Award Ten Times Amount of Investment in Auction Rate Securities Case

Last month an arbitration panel ordered the investment firm USB financial to pay over $80 million in consequential investments to Kajeet, Inc., a company who markets cellphones for kids. Kajeet’s award fell short of the $110 million requested but was more than ten times the company’s the initial $8 million investment.

"This case sends a shot across the bow for Wall Street firms that if they violate securities laws, they can be held liable for consequential damages," said investors' lawyer Jacob Zamansky.

According to a recent WSJ article, Kajeet was forced to cut their 60 employee staff by more than half and cost the company a key distribution deal with a well known retail chain when the action rate securities market froze in February of 2008.

Auction rate securities were sold to investors as safe investments that were similar to cash or money market funds that offered higher return rates than long term debt investments, but when the market froze investors no longer had access to their funds causing a liquidity crisis for many investors.

It is great to see Wall Street being held accountable for their actions. Rulings like this one are necessary to safeguard investors from many of the devious tactics employed by many Wall Street investment firms.

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Auction-rate securities (ARS) are typically typically corporate or municipal bonds with a long-term maturity horizon whose interest rates are reset periodically through auctions held as often as every week.

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