Archive for the “Nuveen Investments” Category

A retired securities attorney is suing Nuveen Investments, Merrill Lynch, Citigroup, Deutsche Bank, and Mesirow Financial for the $2 million in losses that he and his wife suffered as a result of investing in auction-rate securities. According to the lawsuit, Joan and Howard Kastel allege that they are victims of a “fraudulent scheme” in which markets for the instruments were intentionally manipulated. 

The lawsuit says that in August and September 2007 Mesirow Financial purchased 88 shares of auction-rate preferred securities for the Kastels’ account. The shares, which cost $25,000 per share, were issued by three Nuveen North Carolina funds through Nuveen Investments LLC, the Chicago-based broker-dealer, at auctions conducted by Deutsche Bank. As reported in an Aug. 26 article by Investment News, Merrill Lynch and Citigroup participated in the auction, as well.

When the $330 billion auction-rate securities market suddenly froze up in February 2008, the Kastels’ were unable to access their cash. According to their lawsuit, they are now stuck with 85 shares of Nuveen North Carolina ARPS, which pay “unconscionably inadequate” interest that “does not fairly compensate” the couple.

The Kastels are suing Mesirow, Nuveen and Merrill Lynch for approximately $6 million. In addition, they are seeking compensation for emotional distress. 

Prior to the collapse of the ARS market, thousands of retail and institutional investors purchased auction-rate securities on the premise they were cash equivalents. When the market crashed last year, however, they discovered that their liquid investments had become essentially worthless. On the heels of lawsuits by state and federal regulators, some Wall Street banks and investment firms eventually agreed to buy back billions of dollars worth of the securities from retail investors, while other firms have continued to resist such measures.

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.

They were supposed to be cash-like investments, something that would mimic money-market funds. Getting into auction rate securities was the easy part; it’s the getting out that has proven to be a financial nightmare for individual and institutional investors. When the ARS market collapsed in February 2008, investments in auction rate securities suddenly became illiquid, making it next to impossible for investors to sell their instruments.

Now, business for secondary market firms is booming, as more investors still stuck with untradeable investments in auction-rate securities seek out their services as a last-ditch alternative. One of those companies is SecondMarket. As reported Aug. 22 by the Wall Street Journal, companies like SecondMarket are thriving because other firms that initially arranged sales of auction-rate securities and other illiquid assets have not come up with a liquidity solution for investors. SecondMarket arranged $750 million in sales of illiquid assets in the first half of 2009, equaling its sales volume for all of last year.

Secondary market firms match investors with a roster of buyers who are eager to purchase illiquid assets at bargain-basement prices. Holders of the investments receive anywhere from a few cents on the dollar to 90 cents for the best securities.

The deals arranged by secondary market firms like SecondMarket do not come cheap. SecondMarket charges from 2% to 4% of the sales price.

SecondMarket primarily caters to individual investors, and about half of its business is in auction rate securities. Competitor firms like Hedgebay Trading Corp. market their services to large institutional clients.

One investor who turned to SecondMarket was Seymour Lowell, who’d been stuck in auction rate securities from Nuveen Investments since 2008. Nuveen wouldn’t buy back Lowell’s securities, so SecondMarket found him a buyer - at 13% less than the $1.7 million he had paid.

To date, Nuveen has redeemed 38% of its auction rate securities’ face value, with no redemption plans announced for the remaining amount. With no solution in sight, investors like Lowell are more than willing to take significant financial haircuts via firms like SecondMarket.

“My redemptions from Nuveen were really slow, and I’d be dead before I saw it all,” Lowell said in 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.