Massachusettsâ€™Â top securities regulator is turning up the heat on several Wall Street heavy hitters as part of a probe into the $330 billion auction-rate securities market.
Subpoenas were issued by William Galvin, Secretary of the Commonwealth of Massachusetts, on March 28, 2008, to Merrill Lynch, Bank of America Investment Services and UBS Securities for documents and information on how the companies marketed auction-rate securities to investors.
Galvin began his investigation into the auction-rate securities market after his office received numerous calls from investors, who said they thought they had invested in safe, cash-alternative investments. It was only later, when their accounts were frozen and they could no longer withdraw money that they learned it was actually auction-rate securities that had been purchased.
In the past two months, auction-rate securities have been caught in a downward spiral, with more and more auctions failing to attract bidders. Banks that normally stepped in to buy unsold securities backed off their support, already encumbered with large amounts of securities whose values have nosedived.
The lack of confidence in the auction-rate securities market continues to intensify daily, with a number of analysts predicting that this type of structure could go away entirely. Meanwhile, the list of brokers facing litigation alleging they concealed the risks of the bonds gets bigger by the minute.Â
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