Archive for the “Auction Rate Securities” Category

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.

Kajeet Inc., a kids’ cell phone marketer, is the latest winner in the legal battle over auction-rate securities. In August 2010, an arbitration panel of the Financial Industry Regulatory Authority (FINRA) ordered UBS AG to pay Kajeet $80.8 million for damages the company suffered when its cash became frozen in auction-rate securities three years ago. The award was 10 times the amount that Kajeet had originally invested through UBS in auction-rate securities.

As reported August 5 by the Wall Street Journal, Kajeet’s award is an example of how Wall Street’s bills for the market meltdown are still growing. As of the end of June 2010, investors have filed more than 650 arbitration claims with FINRA to recover the financial losses suffered in the ARS market.

Problems for auction-rate securities began in February 2008, after the Wall Street banks that underwrote the securities abruptly pulled back their support. Retail and institutional investors suddenly found themselves unable to liquidate their ARS investments.

Regulators later charged UBS and other Wall Street firms of misleading investors about the liquidity of auction-rate securities, saying the investments had been falsely represented as the “equivalent to cash or money market funds.”

In February 2008, UBS had more than $35 billion in auction-rate investments held by 40,000 customers, according to the Securities and Exchange Commission (SEC).

Kajeet’s victory comes on the heels of several other legal wins by institutional investors involving auction-rate securities. In June 2010, a FINRA arbitration panel awarded $9.8 million to Catalyst Health Solutions in its case against Credit Suisse Securities. In February 2009, another FINRA panel ordered Credit Suisse Group to pay $400 million to STMicroelectronics NV to settle claims that the broker misled STMicroelectronics into buying auction-rate securities.

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.

Raymond James has once again been ordered to make good on clients’ investments in illiquid auction-rate securities. It is the third time this summer that arbitrators with the Financial Industry Regulatory Authority (FINRA) have ruled against the broker/dealer over claims involving auction-rate securities.

As reported Aug. 27 by Investment News, the most recent arbitration claim, dated Aug. 16, awards claimants $925,000. Since July 1, arbitrators have ordered Raymond James & Associates, the company’s employee brokerage firm, and Raymond James Financial Services Inc., its independent broker/dealer, to buy back $3.5 million in auction-rate securities from clients.

When the market for auction-rate securities crashed in February 2008, Raymond James Financial’s clients held $1.9 billion in auction-rate debt. Since then, the amount has been reduced to $600 million.

The latest case against Raymond James concerns investors Rex and Sherese Glendenning, both of whom alleged that Raymond James recommended, and then invested their money in, auction-rate securities that consisted of sewer revenue bonds. The investors also claimed that the actions of their Raymond James broker created the “false impression that there were deep pools of liquidity in the auction market.”

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.

The demise of the auction-rate securities market created financial havoc for retail and institutional investors alike. People lost fortunes and companies went bankrupt. One such company was LandAmerica 1031 Exchange Services and its parent company, LandAmerica Financial Group. Now, two-plus years later, the trustee for LandAmerica says others also bear blame for the exchange company’s downfall.

Earlier this summer, attorneys for LandAmerica’s liquidating trustee issued subpoenas to both Sun Trust Banks and Citigroup for information related to auction-rate securities sales. The story was initially reported July 17 by the Richmond Times-Dispatch. According to the article, more than 1 million documents have been accumulated in the matter so far.

In February 2008, when the auction-rate securities market came to a standstill, LandAmerica had more than $200 million of client funds invested in auction-rate securities. The issue now is whether the exchange company’s brokers - i.e. SunTrust Robinson Humphrey and Citigroup’s Smith Barney unit - falsely represented the liquidity of the investments to investors.

Countless clients who invested with LandAmerica and the supposedly safe auction-rate securities lost everything when LandAmerica closed shop. Case in point: Jean Ann Simmons. As reported back in March by McClatchy Newspapers, the Simmons family entrusted LandAmerica with more than a quarter of a million dollars of their money. A day before Thanksgiving 2008, Simmons arrived at her Texas home to find a one-page letter notifying her that LandAmerica was going out of business.

According to the article, the Simmonses’ money, which came from selling a farm that had been in the family for decades, was gone.

“Like the game of musical chairs, the music stopped and the current 400-plus exchangers were left standing,” said one lawsuit against LandAmerica officials and SunTrust.

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.

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered Raymond James Financial to buy back $2.5 million in auction-rate securities (ARS) from investor Greg Merdinger.

According to a July 27 Wall Street Journal article, Merdinger filed a claim in June 2009 against Raymond James & Associates and Raymond James Financial Services on allegations of breach of fiduciary duty and contract. In the addition to the $2.5 million ARS buyback, FINRA awarded Merdinger $86,000, plus 5% interest on the $2.5 million until Raymond James buys back the securities.

FINRA’s ruling stated that Merdinger initially wanted to invest in money-market funds, but changed his mind based on recommendations from Raymond James. Instead, Raymond James advised him to invest in auction-rate securities, which it said were safer. In making the recommendation, Raymond James concealed the risks associated with the products, FINRA said.

When the market for auction-rate securities collapsed in February 2008, Raymond James continued to advise Merdinger to buy auction-rate securities. As reported in the Wall Street Journal article, copies of emails showed that financial managers at Raymond James realized there were problems in the auction-rate market long before its ultimate collapse.

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.

More institutional investors are coming out on top in their cases involving auction-rate securities. Last month, a Financial Industry Regulatory Authority (FINRA) arbitration panel awarded $9.8 million to Catalyst Health Solutions in its auction-rate securities case against Credit Suisse Securities.

Catalyst Heath Solutions, which manages prescription drug benefits, is just one of many institutional investors to take legal action against Credit Suisse after the ARS market came to an abrupt standstill in February 2008. Following the market’s collapse, institutional and retail investors alike were left financially hammered, unable to liquidate their supposedly liquid investments.

Ultimately, regulatory settlements were reached with a number of broker/dealers that marketed and sold auction-rate securities to investors. Most of the agreements, however, benefited retail ARS holders, not institutional investors.

In 2009, another institutional investor, STMicroelectronics NV, also successfully won its case against Credit Suisse when a FINRA arbitration panel ordered the brokerage to pay STMicroelectronics NV more than $406 million to settle claims that it misled the semiconductor maker into buying auction-rate securities.

On May 27, 2010, FINRA again ruled in favor of an investor’s arbitration claim against Credit Suisse. This time, the panel found Credit Suisse liable to Luby’s Inc. Specifically, FINRA ordered Credit Suisse to buy back the auction-rate securities at par and to pay interest on them at the par purchase price of 6% per annum from and including May 29, 2010, through and including the date the award is paid in full.

According to Luby’s Feb. 10, 2010, quarterly filing, the company held $7.1 million par value or $5.2 million fair value in auction-rate securities.

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.

A Financial Industry Regulatory Authority arbitration panel has ordered Credit Suisse Securities to pay an institutional investor - Catalyst Health Solutions - $9.8 million in a case tied to auction-rate securities backed by student loans.

Credit Suisse Securities is the U.S. broker/dealer unit of Credit Suisse Group. Catalyst Health Solutions is a Rockville, Md., company that manages prescription drug benefits. Catalyst filed its case last year, accusing Credit Suisse of fraud, negligence and selling unsuitable investments.

For the past two years, retail and institutional investors have been waging legal wars against Wall Street over auction-rate securities. The problems began in February 2008 when the $330 billion ARS market abruptly came to a standstill, leaving investors who thought their money was as liquid and safe as cash in severe financial straits.

Following investigations by state and federal regulators, a number of Wall Street firms agreed to buy back ARS holdings from retail clients. The majority of institutional investors, however, were left of the equation.

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.

Auction-rate securities are once again in the news - this time, the spotlight is on Thomas Weisel Partners Group. Specifically, the San Francisco-based investment bank faces a regulatory probe by the Financial Industry Regulatory Authority (FINRA) in connection to sales of $15.7 million in auction-rate securities.

According to a May 18 story in Investment News, a former employee of Thomas Weisel Partners sold auction-rate securities to three clients in January 2008, just before the ARS market collapsed. That employee, Stephen Brinck, allegedly was “stuffing” auction-rate securities into client accounts without getting their permission, according to FINRA. The actions allegedly were done to pay corporate bonuses.

The Investment News story also states that the ARS sales occurred “only days” after Brinck and Thomas Weisel told customers they were selling auction-rate securities because of concerns about the ARS market.

Thomas Weisel says it intends to “defend the FINRA proceeding vigorously.”

Following the demise of the auction-rate securities market, financial firms have bought back more than $50 billion in auction-rate securities from investors and some small businesses in order to settle claims with federal and state regulators.

Brinck worked for Thomas Weisel from August 1999 until August 2008.

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.