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ARS Investor Makes Public Plea

Posted by Larry Doyle on May 3, 2009 2:02 PM |

On the heels of Bloomberg breaking the news of FINRA’s investment in Auction Rate Securities, I have received a number of e-mails from ARS investors thanking me for my pursuit in publicizing that information. One e-mail in particular touched me. This investor purchased ARS from Oppenheimer. His e-mail to attorneys general around the country and major media outlets is powerful. I share his questions; they deserve answers. With the writer’s permission:


Subject: FINRA and Auction Rate Securities

Date: Sat, 2 May 2009 10:03:08 AM Eastern Daylight Time

Is there some legal authority out there who is willing to investigate what could turn out to be the biggest scandal in this whole auction rate securities mess? I realize you guys are tired of hearing from me, I’m tired of writing you. Unfortunately for both of us, this is still a necessity for me. You’re lucky, you can just delete this. I have to keep writing if I ever expect to see my money again.

You see, I know I’ve been robbed. Maybe some of you are not sure if this is really a robbery. Maybe you are so busy, ARS are not high on your priority list? Maybe ARS victims that haven’t figured out yet that they have been robbed deserve to lose their money, I don’t know. I don’t fall into that category.

I fall into the category of people who fell for the illusion of investor protection. The banks owning FINRA, who owned ARS, who sold all their ARS, at just the right time, and never mentioned it to the rest of us who owned ARS sold to us by the owners of FINRA, who neither admit nor deny any wrong doing after they were forced to return what they stole and pay large fines is a little too much for me to come to terms with.

Also seeing Mary Schapiro’s signature on the FINRA 2007 financials which show their ARS holdings, then having you guys tell me if I wanted to file an official complaint about FINRA I had to do so with the SEC. Then having Obama appoint Mary Schapiro to the head of the SEC who I’m going to have to complain to, EGH – the illusion of protection.

To think I filed an official complaint with FINRA and have spent countless hours over the last year e-mailing and calling them hoping to get a little justice, what a farce. Oppenheimer & Co used my trust to rob me and that’s bad. A FINRA betrayal, that’s much worse.

Are the SEC, AG’s, politicians, etc, going to investigate FINRA in earnest or help them cover this up? Will FINRA be required to divulge (with proof) all their activity with ARS? Shouldn’t all questions about their involvement in ARS be answered before the ARS class action suits begin?

You would think that somebody out there might want to know why FINRA decided not to mention their dealings in auction rate securities. Is there anyone interested in why the FINRA investment advisory board decided to advise FINRA to move almost a billion dollars in cash out of ARS right before the market was collapsed by their owners?

Are we going to end up in arbitration against the companies that sold ARS to FINRA and possibly advised FINRA to sell their ARS because the market was going to collapse?

Is the government serious when they say they want to restore investor confidence or do they just want to recreate the illusion they are protecting us so we believe we can be confident to invest again?

Ed Dowling

FINRA Oversees Auction-Rate Arbitrations After Exit

Does The Palace Guards Have No Clothes? at Sense on Cents

Auction Rate Preferreds

From the Bloomberg article:

“It was for cash that we needed to have parked for a temporary period of time,” Perone said. “It was common to take cash you needed to hold and put it in auction-rate securities.” (Ed Dowling’s comment:  If ARS was the choice the FINRA investment committee decided on to park their cash then why did they decide to liquidate all their cash, $862 million, shortly before the market was frozen? Did FINRA just get lucky that they need 100% of their cash right before the market was frozen? What did the investment committee need 100% of their cash for at that particular time?)

“Decisions as to how to invest Finra’s assets are developed through a professional investment committee in consultation with professional investment managers,” Schapiro said in a prepared statement. “The procedures for researching, analyzing and recommending investments are well established and publicly disclosed.” (Ed Dowling’s comment: Their procedures are publicly disclosed. They never disclosed actually buying and selling ARS. Who did they buy them from? Was the company(s) they bought them from updating them on changes in the market conditions of their $862 million investment? Did they make their decision to sell 100% of their ARS based on information they received, a few months before the market was frozen, from the same companies that froze the market? Are we expected to go to a FINRA arbitration against these same companies? Did anyone at FINRA consider this to be a conflict of interest?)

“Investors who were sold the securities as money-market alternatives say Finra, a non-profit corporation owned by banks that oversees 5,000 brokerage firms and 659,000 brokers, failed to protect them. The market froze in February 2008 when banks, which had supported the debt for two decades through periodic dealer-run auctions, stopped buying bonds that investors didn’t want as losses from subprime mortgages spread.”  (Ed Dowling’s comment: Isn’t banks owning FINRA like the mafia owning the FBI. The ARS market did not freeze, it was frozen. All the banks stopped supporting the market on the same day. This is collusion. Are we supposed to believe that the banks didn’t advise FINRA, who they own, to sell their $862 million dollar investment?)

“Finra didn’t know the auctions were poised to weaken, Perone said. The regulator issued its first guidance for investors caught in the debt on March 31, 2008, more than a month after the failure rate rose to about 80 percent.” (Ed Dowling’s comment:  FINRA should have issued guidance before the market was frozen. They knew when they bought ARS that they were being marketed as cash equivalents. They knew when they sold their $862 million of ARS (a few months before the market was frozen by the same companies that own them) that they were no longer considered cash equivalents. Why didn’t they warn us? Does their silence have anything to do with their owners? If FINRA didn’t know the auctions were poised to weaken they should have. It’s their job to know. Their owners knew.)

“The regulator has been involved in more than two-dozen investigations “into firms’ conduct with respect to auction- rate securities,” Perone said. Finra enforcement has returned $2 billion of investor money, he said. States and the SEC have recovered more than $50 billion” (Ed Dowling’s comment: FINRA’s $2 billion return represents .0055% of the ARS heist, they ought not mention this. Does their performance have anything to do with their owners?)

“Finra didn’t know the auctions were poised to weaken, Perone said.”  (Ed Dowling’s comment: If this statement is true then FINRA was not aware of SEC action mentioned below?)

“The SEC was investigating auction-rate dealers while Finra was buying the securities, and fined 15 dealers $13 million in May 2006 over practices that included bidding to prevent failures. The dealers, who didn’t admit or deny wrongdoing, were allowed to continue the practice as long as it was disclosed.”

(Ed Dowling’s comment: There are many more questions FINRA should be required to answer about their involvement in auction rate securities. If FINRA gets a pass on this then we know that their real purpose is about protecting the banks and brokerages. As investors we will need to avoid them at all cost. They should be considered part of the problem not the solution. I’m not sure if any financial co. will take our money unless we sign an arbitration agreement. We now know why. If there is a co. that does not have this requirement we should consider using them.)

There are thousands of investors like Ed with billions of dollars in total frozen in ARS. They deserve an immediate return of their money and some justice to boot. For those who care about this topic and are connected to media outlets and/or political operatives who can make a difference, please share this letter.


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