Holders of Auction-Rate Debt Have Few Options
Holders of auction-rate securities are stuck between the proverbial rock and hard place. The predicament of 47-year-old Cecilia Walsh is a prime example.
Walsh was profiled by The Wall Street Journal columnist Liz Rappaport in the article, “Holders of Auction-Rate Debt Have Choices, but Few Solutions.”
Walsh received $375,000 in a divorce settlement and invested the entire amount in auction-rate securities last December. By February, the market had frozen and Walsh couldn’t get to the money she needed for her day-to-day expenses.
UBS AG, Walsh’s broker, gave her a margin loan. But the broker later marked down the value of her auction-rate securities and forced her to repay a portion of her loan. The auction-rate securities underwent further write downs. In early June, Walsh received a margin-call notice after her investments were valued at $187,500, a whopping 50 percent of the original value.
Walsh chose to margin her auction-rate securities and suffered big losses. Others have dumped their investments on the secondary market and taken a haircut as well. Meanwhile, some are hanging on to the securities and hoping they can ride out the financial crisis. But the investors know that one personal emergency could derail that plan.
Ironically, most all of these investors are conservative. They chose auction-rate securities because they believed the instruments were as safe as cash.
Auction-rate securities investors who wish to discuss their rights against any broker-dealer may contact Carey & Danis toll-free at 800-721-2519 or fill out our online contact form
