(Bloomberg) -- Raymond James & Associates must face a lawsuit claiming it defrauded buyers of auction-rate securities, the first class-action complaint following the market's 2008 collapse to survive a judge's initial review.

At least 19 underwriters and broker-dealers were sued in class-action, or group, suits since the $330 billion market for auction-rate securities cratered in February 2008. At least eight financial firms, including Citigroup Inc. and Deutsche Bank AG, got complaints tossed when judges ruled they didn't meet pleading requirements. In some cases, the investors were allowed to refile complaints with more detail.

U.S. District Judge Lewis A. Kaplan in New York yesterday upheld part of the complaint against the unit of St. Petersburg, Florida- based regional brokerage Raymond James Financial Inc., allowing the case to move to the discovery, or evidence-gathering, stage.

"A trier of fact would be entitled to find that it would have been important to a reasonable investor, in deciding whether to buy or sell ARS, that the ARS -- supposedly liquid investments -- were liquid only because auction brokers routinely intervened in the auctions to ensure their success," Kaplan wrote in his Sept. 2 opinion. "RJA was under a duty to disclose this information."

Kaplan threw out an earlier complaint in the case.

'Limit the Scope'

"Raymond James is pleased with the judge's decision to dismiss most of the allegations completely and severely limit the scope of the remaining claims," the firm said in a statement e-mailed by Anthea Penrose, a company spokeswoman, yesterday. "The firm intends to vigorously defend itself and expects to ultimately prevail on all counts."

In the lawsuits, investors accused financial institutions of steering them to instruments promoted as safe as cash that turned out to be illiquid and couldn't be redeemed. They also said the banks didn't sufficiently disclose that they took part in the auctions to keep them from failing. The market froze when the financial firms ended that participation.

Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through auctions.

Raymond James & Associates sold $2.3 billion of auction-rate securities, underwrote $1.2 billion and was the auction dealer for more than $725 million, according to Kaplan.

Pleading Sufficiency

In deciding whether to dismiss a lawsuit or allow a case to go forward, judges rule on the sufficiency of the complaint rather than on the merits of the accusations. Investors have survived banks' motions to dismiss in individual, rather than class-action, cases over auction-rate securities.

"The most important hurdle for plaintiffs' lawyers to cross in securities class-action litigation is the motion to dismiss because they often do not have enough information to cross that threshold that opens the door to discovery," Jacob Frenkel, a former U.S. Securities and Exchange lawyer, said in a phone interview today. "Once they have access to discovery, the lay of the land changes."

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