Anschutz Takes On Wall St.

The Anschutz Corp., parent of AEG, has sued Merrill Lynch, Moody’s Investors Service, Standard & Poor, Deutsche Bank and Fitch Ratings, seeking damages from some $59 million in auction rate securities AEG claims it overpaid for. And some of the allegations will sound familiar to those who keep up with finance news.

The securities were underwritten by Merrill Lynch and Deutsche Bank and marketed and sold to two investors, according to the complaint. Anschutz suffered “significant losses” from the sale, thanks to “material omissions” made by Merrill Lynch and Deutsche.

“The ‘market’ for auction rate securities was a sham, secretly propped up by investment banks like Deutsche Bank and Merrill Lynch, in order to create the appearance of a well-functioning, liquid and efficient market,” the complaint says. “This illusion enabled the banks to earn hundreds of millions of dollars in underwriting fees. Without the secret support of Merrill Lynch and Deutsche Bank and other investment banks, there was no market for auction rate securities; they were unsaleable.”

Anschutz further alleges that Moody’s, S&P and Fitch “enabled this fraud by consistently giving these auction rate securities the highest or second highest rating available, thereby representing to investors such as [Anschutz] that the auction rate securities were highly safe and liquid instruments, and that the collateral underlying these instruments was of sufficient quality to virtually ensure principal and interest payments.”

In late 2007, just months before terms like “too big to fail” and “bailout” made news, Anschutz alleges “capital constraints forced Merrill Lynch and Deutsche Bank to discontinue their manipulative practice of artificially supporting the auction process.” Auctions for the securities underwritten by the financiers failed, and Anschutz was stuck holding unsellable securities, according to the complaint.

Anschutz charges 11 counts including violations of the Exchange Act, California Corporate Code and Securities Law, fraud and negligent misrepresentation. In addition to $58.9 million in actual damages, the suit seeks unspecified compensatory damages, disgorgement, punitive damages, and legal costs and expenses.