Archive for November, 2010

Some investors with investments in auction-rate securities are still trying to recoup their money - more than two years after the $330 billion ARS market froze up. One of those investors is Joel Oppenheim, who says retirement would in his near future if not for the $2.5 million he has tied up in auction-rate securities.

As it is, Oppenheim says all he can do is watch his savings dwindle and pay interest on the money he’s had to borrow to pay his taxes.

Jane Williamson, a social-services worker, is another victim of auction-rate securities. According to an Oct. 30 story by the Wall Street Journal, Williamson invested $200,000 in auction-rate preferred securities on the advice of her adviser. As it turns out, that advice has cost her dearly. Unable to get to her cash, Williamson ended up without a home and forced to live with a friend. She finally sold her ARS investments at a huge loss.

Oppenheim and Williamson are far from alone. Many investors just like them purchased auction-rate securities on the recommendation of brokers who touted the products as “cash-like investments.” Far from liquid-as-cash investments, the securities became frozen in February 2008 when Wall Street investment firms pulled out of the auctions that sold the products.

According to the Wall Street Journal article, Oppenheim invested $3.8 million in auction-rate securities in late 2007 on the advice of his broker at Oppenheimer & Co. At the time, he allegedly told his broker that he would need the money in April 2008 for tax purposes. According to Oppenheim, the broker said the money could be ready in a matter of days.

When the ARS market came to a standstill in February 2008, Oppenheim was forced to take out a $2 million loan to pay his taxes. Since then, he’s been paying $5,500 per month in interest, while receiving about $900 a month in interest from his auction-rate securities. Over time, some of his money has been redeemed, but he’s continued to watch his savings dwindle, according to the WSJ story.

“It’s been devastating because I don’t know what my future will look like,” says the 67-year-old in the article. Oppenheim says he’s been unable to help his 25-year-old daughter, who has epilepsy, as much as he would otherwise, or to make the $25,000 annual donation to a foundation he created to benefit medical research.

Oppenheimer is one of the largest sellers of auction-rate securities. Under a settlement with New York State Attorney General Andrew Cuomo, the company did agree to buy back some of the securities from investors with accounts of less than $1 million. That didn’t include Oppenheim, however.

Oppenheim has filed a complaint with the Texas Attorney General Greg Abbott.

Williamson, 56, also invested through Oppenheimer on the advice of her broker. She had just sold her home and was looking for a safe albeit temporary place to put her money. When Williamson obtained a sale agreement for a new home, she called her broker, and was shocked to learn that her money in auction-rate securities was now frozen.

“It was all I had,” said Williamson, a single mother who had worked in a civil service job for 30 years, in the Wall Street Journal article.

Williamson later had $50,000 of her securities redeemed, and finally redeemed the rest on the secondary market for a loss of $34,500.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Goldman Sachs Group will pay the state of Kansas $800,000 to settle claims that it misled Kansas investors about the safety of auction-rate securities.

According to the Kansas Securities Commissioner, the securities were marketed as safe and liquid investments. Instead, when the market for auction-rate securities suddenly became frozen in February 2008, investors found themselves with illiquid products that no one wanted to buy.

The $800,000 fine will be placed in the Kansas Investor Education Fund, which gives grants to organizations for education on fraud prevention and financial literacy.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Two years after the $330 billion auction-rate-securities market became frozen, thousands of individual and institutional investors are still waiting for answers. Some investors have been lucky. This summer, UBS AG - one of the biggest retail ARS sellers - was ordered via an arbitration decision to pay $81 million to Kajeet Inc., a Maryland firm. The ruling was 10 times the amount that Kajeet had originally invested in auction-rate securities.

Before the ARS market crashed in February 2008, auction-rate securities were issued by cities, hospitals, school districts, and others as long-term debt instruments and resold with new interest rates at periodic auctions. Many individual and institutional investors bought the securities because the products were touted by financial advisors as safe alternatives to cash.

Everything changed in 2008, however, when the Wall Street banks that had previously supported auctions for ARS products pulled out entirely. As a result, the market froze, and investors with supposedly cash-like investments were unable to access their cash.

Since then, a number of investment firms and big banks have repurchased billions of dollars of auction-rate securities from investors in order to avoid charges from state and federal regulators. Many investors, however, have been left out of such agreements. As reported Oct. 30 by the Wall Street Journal, some cases include investors who bought securities at one firm and then moved their accounts. Moreover, some brokerages that sold auction-rate securities but didn’t create them have yet to settle with clients.

In the meantime, investors who bought their auction-rate investments through a broker/dealer governed by the Financial Industry Regulatory Authority (FINRA) are filing arbitration claims in hopes of recovering their losses. Other investors are turning to the secondary market, where the securities generally sell for between 70 cents and 90 cents on the dollar. The amount depends on the issuer and how long the securities are expected to remain outstanding, according to the Wall Street Journal article.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.