In the Matter of the Arbitration Between Jeffrey and Linda Kraemer, Claimants, vs. UBS Financial Services, Inc. , Respondent (FINRA Arbitration 09-03944, March 22, 2010), the Kraemers alleged that they were unable to liquidate auction rate securities (ARS) purchased in July 2007. Claimants asserted that they needed to keep their money in liquid assets to finance the construction of a new home and when they were unable to liquidate their ARS, they were forced to liquidate two Roth accounts and an IRA to pay for the construction costs and suffered consequential damages in the amount of $65,956.
Respondent UBS generally denied the allegations and asserted affirmative defenses including that Claimants failed to state a claim and that any loss they incurred was, in whole or in part, caused by the acts of third parties, or by conditions and events outside the control of UBS. Also, UBS argued that Claimants did not incur consequential damages as a result of its actions; and, further, if Claimants did sustain damages, they had failed to mitigate them and such a failure would bar the claim. Finally, UBS asserted that Claimants' claims were barred by the doctrines of ratification, waiver, and estoppel.
The FINRA Arbitrator found Respondent UBS liable and awarded the Claimants $59,251.00.
Bill Singer's Comment: Notwithstanding numerous high-profile ARS settlements with various federal, state, and civil parties (See, this SEC iteration involving Wachovia: http://www.sec.gov/news/press/2009/2009-17.htm), many consumers still find themselves in the equivalent of a regulatory/litigation wasteland. Either their brokerage firm has not participated in any settlement obligating a full buy-back of the ARS, or the settlement did not mandate a total buy-back and left consumers dangling between taking something or suing for full compensation. (See, stories about the the NYS Attorney General's ARS settlement: http://dealbook.blogs.nytimes.com/2010/02/23/oppenheimer-settles-auction-rate-securities-lawsuit/)
In the Kraemers' case, the damages sought would likely not be covered under most ARS settlements because the alleged damages do not appear to be solely related to a diminution in the value of the underlying ARS. In this case, the damages sought were related to the liquidation of their Roth Accounts and an IRA for the purpose of covering construction costs on a new home.