LOUISVILLE — Ashland Inc. cannot prove that its investment broker knew in advance that a securities market would collapse in early 2008, leaving the company with $194 million in investments that couldn't easily be sold, a federal appeals court ruled Thursday.
A three-judge panel from the U.S. 6th Circuit Court of Appeals found that the Covington-based chemical company couldn't show that New York-based Oppenheimer & Co. lured Ashland into continuing to buy auction rate securities while hiding knowledge about an impending market implosion.
"At best, the alleged facts suggests that a few Oppenheimer employees were aware of what might happen if the underwriters left the ARS market, a seemingly remote risk, given its past stability," Judge Deborah Cook wrote for the unanimous panel.
The decision upholds a ruling in 2010 by U.S. District Judge Jennifer Coffman rejecting Ashland's claims. Ashland sued Oppenheimer in 2009, accusing the brokerage firm of providing intentionally misleading information about the market for student loan-backed auction rate securities up until the market went under in February 2008.
Auction rate securities are long-term bonds with interest rates periodically reset through recurring auctions, which are commonly held on a schedule ranging from seven to 35 days. Investors can sell their securities at each auction, provided buyers outnumber sellers. If there are more sellers than buyers, an auction fails, potentially leaving sellers holding the securities.
Ashland sought to invest roughly $1.3 billion following the 2005 sale of its stake in a joint venture with Marathon Oil Corp. After initially buying municipal bond-backed securities, Cook wrote that the company moved into student loan-backed securities in 2007 after Ashland officials became concerned about the impact of the subprime-mortgage crisis on the securities and contacted Oppenheimer for assistance.
In January 2008, Goldman Sachs allowed an auction of the student loan-backed securities to fail. Ashland Inc. said in the lawsuit that an Oppenheimer official described the failure as an "aberration" and that the securities were "safe, liquid, and suitable investments."
Later that month, both Lehman Brothers and Piper Jaffray also allowed auctions to fail. Ashland Inc. claims Oppenheimer continued to market the securities to them, making no mention of possible dangers in the market.
Ashland bought its last student loan-backed auction rate security in early February 2008. Five days after the purchase, the market for the securities collapsed, leaving Ashland with hundreds of millions of dollars in securities that could not easily be sold.
Ashland claims that because of the market collapse, it had to borrow money and incur millions of dollars in financing charges to complete an acquisition.
Ashland didn't immediately return a message left seeking comment Thursday.