Once again, a state attorney general with nothing to do whatsoever with the issue has stepped in to demand millions in “penalties” for supposed crimes by large financial institutions. Of course, everyone now believes the “little guy” was deceived and cooerced into buying higher-yielding but sold-as-money-market auction rate securities. It’s embassassing….
The thought that any of these investors didn’t know they were taking more risk than they would be in a money market mutual fund is ridiculous. Money market mutual funds, though no retail investor has ever lost money, go to extraordinary lengths to make sure that anyone coming within a mile of them knows they can lose money. If money fund investors all know they could theoretically lose money, wouldn’t auction-rate securities buyers too?
Once again, we’re left with millions upon millions of legal costs and regulatory paranoia costs piled upon financial institutions, and the small investors that did the right thing — ignored the higher yields and stayed safe — will be left paying the tab. Meanwhile the greedy investors that stretched for yield are left laughing.
So we get another modern regulatory lesson. Don’t work hard and play by the rules. Go greedy, because your state attorney general will make sure you, they, and the trial lawyers, get another fat payday compliments of the Everyman.
So after being betrayed by my advisor, I should listen to your ridicule? My broker committed both mail fraud and wire fraud with his representations. The citizens of New York and Massachussets are the lucky ones. The Attorney General of my state, Florida, is sitting on his hands. Disgreceful!!
Dear Sir/Madam-
If indeed your broker represented something false in writing, you should have no problem obtaining compensation for any losses or delays. But I have a hard time believing that your broker didn’t tell you about the (remote) possibility that an auction would fail, and I’d guess that all the risks were plainly laid out in any documents, had you bothered to read up on them. The risks of auction-rate securities were well-documented among financial professionals…. You should know that a yield that’s too good to be true likely is. Next time, if it’s yielding far above the Fed funds rate, run!
-Pete Crane
You misrepresent the facts. Lack of liquidity when the banks stepped away is what caused most of the problem.
Any ARP buyer knew that they could lose money if the underlying collapsed overnight. This was extremely unlikely.
ARPS , especially CEF ARPS were sold with the implied ability to sell as needed. If that promise was not made, no one would have bought them.
The banks lied.