Sense on Cents

There seems to be a growing stream of information and activity surrounding the travesty with Auction Rate Preferred Securities, otherwise known as ARPS.  Citigroup and Wachovia just settled a $4.7 billion claim brought by California investors. Oppenheimer Holdings, based in Toronto, is considering incorporating itself in the United States in an attempt to receive government funds via the TARP (Troubled Asset Recovery Program) to settle outstanding claims by ARPS investors. 

This morning, Bloomberg reports UBS Auction-Rate Securities Suit Dismissed by Judge. What is this? No fraud was perpetrated? Did the investors not properly make their claim? Was UBS not liable in the underwriting and selling of ARPS? Is Sense on Cents making no sense with all the writing on this topic? Let’s review what the judge in this case has to say:

March 31 (Bloomberg) — UBS AG, Switzerland’s biggest bank, won dismissal of a lawsuit brought by investors who bought auction-rate securities from it.

U.S. District Judge Lawrence M. McKenna in New York ruled against the investors because they were made whole from a settlement the Zurich-based bank reached in August with state and federal regulators in which it agreed to buy back $19.4 billion of the securities.

“Given that plaintiffs have availed themselves of the relief provided for in the regulatory agreement, plaintiffs now cannot allege out-of-pocket damages,” McKenna ruled yesterday. The investors “have already been returned to the position they were in before they purchased the ARS and before any fraud ensued.”

The judge’s statement highlights the fact that the investors in this suit have already been made whole in a prior settlement but also acknowledges that a fraud ensued. 

Given that there is public acknowledgement by a federal judge that a fraud had ensued in the marketing and distribution of ARPS, let us return to the case Sense on Cents has been highlighting. FINRA’s Annual Report for 2007 publicy records that FINRA owned $647 million ARPS at year end 2006.

The questions that need to be answered:

1. Was FINRA defrauded in the purchase and sale of their bonds?

2. If FINRA has sold their bonds subsequent to the publishing of that report in April 2008, to whom did they sell them? at what price? on what date?

3. Did FINRA have material non-public information at the time of sale, if in fact they sold them? Did they act on that information?

Let’s put this into layman’s terms. FINRA was supposed to be overseeing and regulating the casino on Wall Street. In the process of regulating the casino, it appears that they put some of their own chips into one of the games. That game, ARPS, turned out to be a fraud, as publicly acknowledged by U.S. District Judge Lawrence McKenna in this case with UBS. 

DID THE SECURITY GUARD, FINRA, PROTECT THE OTHER PATRONS AS REQUIRED OR DID THE SECURITY GUARD PROTECT HIS OWN INTERESTS TO THE DETRIMENT OF THE OTHER PATRONS?

LD

This entry was posted on Tuesday, March 31st, 2009 at 1:31 PM and is filed under FINRA, Wall Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.