NEWARK, N.J. -- Dow Corning Corp., the world's biggest silicone supplier, has sued BB&T Corp., accusing the bank of falsely representing the safety and liquidity of $667 million in auction-rate securities that the company can't sell.
Bloomberg News reported yesterday that Dow Corning bought the bonds from 2005 to February 2008 after BB&T touted them as a "highly liquid, highly rated and secure investments that were equivalent to cash," according to a fraud lawsuit in federal court in Newark, N.J.
"Defendants knew and should have known that the ARS markets were in fact deteriorating and that ARS were not safe, liquid investments," the complaint says.
Auction-rate securities were issued by municipalities, student-loan agencies, closed-end funds and other companies, with interest rates periodically reset through a weekly or monthly bidding process. Brokerages abandoned their voluntary support for the $330 billion market in February 2008, stranding investors who could no longer trade the bonds at auction.
The complaint, filed Wednesday, accuses BB&T and its Scott & Stringfellow broker-dealer unit of fraud, breach of fiduciary duty, negligent misrepresentation and omissions, and violations of the Michigan Uniform Securities Act. Dow is pursuing unspecified compensatory and punitive damages.
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