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August 27, 2013 at 09:52 AM
An appeals court ruled Tuesday to reinstate two of four claims in a lawsuit that New York state brought against Charles Schwab accusing the brokerage firm of falsely describing auction-rate securities as liquid investments without disclosing the risks.
According to Bloomberg, a four-judge appeals court panel reinstated two of the four claims in the case, securities fraud allegations based on the state’s Martin Act law, saying the attorney general’s office presented enough evidence for a trial.
“We find the Martin Act causes of action to be sufficiently pleaded given the fact that the statute is remedial and should be broadly construed in order to attain its beneficial purpose,” Bloomberg quoted Justice Richard Andrias as writing. “Under the statute, the word ‘fraud’ is broadly defined so as to embrace even acts which ‘tend to deceive the purchasing public.’ Based on this standard, the complaint sets forth actionable Martin Act claims notwithstanding the absence of a specific allegation that Schwab represented ARS to be liquid at times when they were illiquid.”
The Martin Act gives the New York attorney general extraordinary powers, more than other state regulators, to fight financial fraud.
The San Francisco-based brokerage was sued by then-Attorney General Andrew Cuomo in August 2009, and State Supreme Court Justice Justice O. Peter Sherwood granted Schwab’s motion to dismiss the case in 2011, Bloomberg reported.
The attorney general’s office sued on behalf of investors who bought the securities through Schwab.
According to Bloomberg, the company was accused of engaging in “fraudulent and deceptive conduct” and failing to disclose the risks involved in the investments.
