Auction-Rate Securities Investors Held Hostage
In last Sunday’s New York Times, columnist Gretchen Morgenson compared the current auction-rate securities market to a hostage crisis. She wrote:
“Some $300 billion worth of investors’ funds – advertised as being as easy as pie to cash in – are still locked up. And brokerage firms that got investors into this mess are doing little to help.”
The article, “How to Clear a Road to Redemption,” notes that even as investors face a financial meltdown due to the frozen markets, broker-dealers are still gorging themselves at the fee trough. That’s because the broker-dealers who agreed to run the auctions still earn fees even though 70 percent of the weekly auctions are failing.
In addition, many of the auction-rate securities were issued by municipalities. If the municipalities now try to redeem the instruments, the broker-dealers collect another fee for unwinding the transactions.
Morgenson took a dim view of the practices:
“Wall Street should stop with this me-first routine. Pronto. It should stop billing issuers for failed auctions and should recommend that they redeem securities at fair value in the marketplace.”
If you hold auction-rate securities, contact Carey & Danis.
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