OTC Derivatives:

Lawsuits Involving Sales Practice Concerns

GGD-98-43R: Published: Dec 19, 1997. Publicly Released: Dec 19, 1997.

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Thomas J. McCool
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Pursuant to a congressional request, GAO reviewed: (a) the sales practices related to over-the-counter derivatives, mortgage-backed securities, and structured notes; and (2) lawsuits involving sales practices concerns.

GAO noted that: (1) of the 13 lawsuits reviewed, 6 involved Bankers Trust and the remainder involved several U.S. securities firms; (2) the claims made in the lawsuits generally included state-based claims of fraud, breach of fiduciary duty, and misrepresentation, but seven cases also involved claims under federal laws, including fraud and other claims under the Commodity Exchange Act or the Securities Exchange Act of 1943; (3) in addition, the end-users in four of the cases claimed that their personnel had not been authorized to enter into the transactions; and (4) three of the 11 cases are ongoing.

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