Texas Instruments Inc has sued Citigroup Inc , Morgan Stanley and Bank of New York Mellon Corp , accusing the banks of misleading the chipmaker into buying $524 million of auction-rate securities that have become illiquid.

In a complaint filed Wednesday in a Texas state court in Dallas County, Texas Instruments said the banks falsely marketed the securities, which were backed by student loans, as a low-risk, liquid alternative to other short-term investments. It said the banks also failed to disclose the extent to which they participated in auctions to support the market.

As a result of the banks' actions, Texas Instruments was unable to accurately analyze the risks and possible interest rates for the auction-rate securities it was purchasing or holding, the Dallas-based company said.

Texas Instruments is seeking to rescind its auction-rate purchases and be awarded interest and other costs. A copy of the complaint was provided by Courthouse News Service.

Citigroup spokeswoman Danielle Romero-Apsilos and Morgan Stanley spokeswoman Christy Pollak declined to comment. Bank of New York Mellon did not immediately return a request for comment.

Auction-rate debt has rates that reset in periodic auctions. After the $330 billion market seized up in February 2008, many investors could not sell the debt, or could sell it only at a loss.

State and federal regulators have accused many brokerages of misleading investors into believing the debt was safe and the equivalent of cash. They have forced brokerages to buy back more than $50 billion of the debt, and levied hundreds of millions of dollars of fines.

In February, an arbitration panel of the Financial Industry Regulatory Authority ordered Credit Suisse Group AG to pay semiconductor company STMicroelectronics NV more than $406 million to settle similar auction-rate claims.

The case is Texas Instruments Inc. v. Citigroup Global Markets Inc., Texas District Court, Dallas County, No. 09-3774.

(Reporting by Jonathan Stempel, editing by Gerald E. McCormick)

Citigroup Morgan Stanley Investment