(Bloomberg News) Charles Schwab Corp. won dismissal of the New York attorney general's lawsuit accusing it of falsely describing auction-rate securities as liquid investments without disclosing the risks.
The independent, San Francisco-based brokerage was sued by then-Attorney General Andrew Cuomo in August 2009. New York State Supreme Court Justice O. Peter Sherwood in Manhattan granted Schwab's motion to dismiss the case in an order signed Oct. 24 and entered into public court records today.
New York Attorney General Eric Schneiderman's office is reviewing the decision, spokeswoman Lauren Passalacqua said in a phone interview.
Greg Gables, a spokesman for Charles Schwab, said the company is "very pleased" with the outcome.
The attorney general's office sued on behalf of investors who bought auction-rate securities through Schwab, alleging the company engaged in "fraudulent and deceptive conduct" and failed to disclose the risks involved in the investments, according to Sherwood's ruling.
Schwab argued that the complaint doesn't allege statements that were false when made, doesn't identify who made the misstatements, when and where they were made or how they were misleading, Sherwood said in the order.
'Allegation of Misrepresentations'
The complaint is "devoid of any allegation of misrepresentations made that were untrue when made," Sherwood wrote in his order, noting that the attorney general's office spent more than a year investigating before filing the complaint, obtained more than 450,000 documents, received recordings involving more than 200 auction-rate securities and deposed 11 witnesses.
"The complaint, the AG's response to defendant's interrogatories and concessions made by the AG at oral argument reveal that the misrepresentations alleged were true when made and that the complaint contains no allegations that ARS were liquid at a time when they were illiquid," Sherwood said in his ruling.
Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through auctions.