In the first of what is likely to be an avalanche of suits over the collapse of the auction-rate market, UBS (NYSE: UBS) has been sued for misleading investors. According to The Wall Street Journal (subscription required), the suit claims that "UBS engaged in 'a deceptive and misleading plan' to cause its clients to place their money in auction-rate securities instead of customarily liquid investment products such as money-market funds."

There are two kinds of legal actions the banks and brokerages who ran that auction-rate market since 1985 will face. The first is that clients, both corporate and consumer, will claim that auction-rate securities were not actually the equivalent of cash, but were marketed as such. Individual investors and some public companies are already facing a liquidity crisis as they try to get their money out of auction-rate paper.

The other set of suits will likely be over whether companies like UBS and Merrill Lynch (NYSE: MER) had an obligation to keep the auction-rate market running once they had, over a 20-year period, created an "exchange" that investors could reasonably believe would have regular and successful auctions.

It's another straw on the back of financial companies where the troubles are growing by the day.

Douglas A. McIntyre is an editor at 247wallst.com.