Scandals May Prompt Suits from Bondholder Trustees

Kaplan, Harold L., Schaffer, David S., American Banker

Recent disclosures of accounting irregularities at major public companies -- including some that involved securities fraud lawsuits and investigations by the Securities and Exchange Commission -- may put pressure on banks that act as indenture trustees representing bondholders to bring securities fraud actions themselves.

However, the general -- though sometimes forgotten -- rule is that indenture trustees do not have authority to bring such actions, no matter how much the companies' investors or other constituencies may clamor for them. These lawsuits are most typically brought on behalf of people who had bought the company's securities -- usually when they were first issued. Trustees, on the other hand, brought in to collect past-due amounts under the bonds on behalf of current securities holders, whom indenture trustees are deemed to protect.

Over the years, those who have sought to defend the right of indenture trustees to …

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Publication information: Article title: Scandals May Prompt Suits from Bondholder Trustees. Contributors: Kaplan, Harold L. - Author, Schaffer, David S. - Author. Magazine title: American Banker. Publication date: July 26, 2002. Page number: 9. © 2009 SourceMedia, Inc. COPYRIGHT 2002 Gale Group.

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