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Wall Street ARS Betrayal Brings Losses and Sleepless Nights

Posted by Larry Doyle on August 28, 2009 9:19 AM |

Those who would betray the trust and integrity of a market and investment must be held to account.

Such is the current dynamic within Wall Street’s greatest fraud that encompasses Auction-Rate Securities.

At times, I wonder if I focus too much on the ARS debacle. Then, when I read of the depths of despair experienced by ARS investors, both institutions and individuals, I personally seethe at the injustice of it all.

Bloomberg provides a wide ranging review of institutional investors who were defrauded by Wall Street in purchasing auction-rate securities. Bloomberg writes Wall Street Betrayal Seen in $4.8 Billion Company Debt Losses. The highlights in this article are almost too numerous to single out, but suffice it to say this fraud has likely touched almost every investor in either a direct or indirect fashion.

I am heartened that the fraud is finally receiving significant focus. That said, how will Wall Street be held accountable and how will investors be made whole? Let’s address some specific details as highlighted by Bloomberg:

Bristol-Myers Squibb Co. the New York-based pharmaceutical company, took an 82 percent loss in 2008 when it sold a portion of its auction-rate debt with a $642 million face value.

The maker of Plavix, the world’s second best-selling medicine behind Pfizer Inc.’s Lipitor, continues to hold $169 million worth of auction-rate bonds. It wrote them down by $75 million in the second quarter, according to regulatory filings.

An 82% loss on a supposed cash surrogate! A 44% writedown on cash!

The market’s collapse also caused “staggering losses” to Teva, according to a lawsuit filed Aug. 6 against Bank of America’s New York-based Merrill Lynch & Co. unit, which sold $273 million of obligations to the Petah Tikva, Israel-based drugmaker.

The securities are now worth $10 million, according to the suit, which said that “Merrill Lynch was engaged in an elaborate scheme to deceive investors about its involvement in the auction-rate market.”

Elaborate scheme to deceive investors! How could that happen on a cash surrogate?

In April, Texas Instruments, the second-largest U.S. semiconductor maker, sued New York-based Citigroup Inc., Morgan Stanley and BNY Capital Markets Inc., now part of Bank of New York Mellon Corp., over $521 million in auction-rate securities bought since 2005.

“They let us believe they would be liquid,” the Dallas- based company’s treasurer, Charlie Tobin, said in a telephone interview. “At the same time, within their institutions, they knew it was coming to an end.”

While the Wall Street bank coffers are being filled by the easy money provided by the Fed, so many ARS investors are receiving little gratification.

Who was mandated to protect investors and oversee the ARS market? The SEC and FINRA, the Wall Street self-regulatory organization. Yes, the same FINRA which owned and liquidated $647 million ARS in 2007. How was FINRA so fortunate to get its money out of the ARS market? FINRA has shown no measure of responsibility or obligation in opening its books to reveal all details of its ARS liquidation. FINRA’s day of reckoning will come.

Those in Washington and on Wall Street will be exposed as total hypocrites if they do not support the Amerivet Securities complaint against FINRA requiring FINRA to open its books.


  • Kathy

    And the investment banks tell risk averse small investors, you should have know you were taking a chance. Yet multinational corporations didn’t…

    About time that corporations fought back. They must demand that funds refinance and banks give the money back.

    And you’re right, Larry, you’re NOT focusing too much. This is a fundamental failure of the system. It must be known, and it must be solved. The longer the financial industry ignores, the more clear their moral bankruptcy.

  • Anthony


    I have worked hard and saved my whole life while I watched my friends by bigger houses, boats, jet skis, nice cars and everything else they don’t need. I saved and saved and one day my broker says why do you have all that money just sitting in a money market account? You could get three times the interest and still have it liquid. Better yet, the interest is TAX FREE. I moved my money and now it’s like I don’t have it. I can’t touch it even though it is mine! A lifetime of savings has been robbed from me and noone seems to care. This is the first new article I have seen about ARS in over a year. How this isn’t more of a story is beyond me.

    When I stated that I need my money the firm’s lawyer said that I should have thought of that before investing. When I said that I stated that I needed the money to be safe and liquid she said I should have read the prospectus (that I never received). That’s what is great about this country. We will screw anyone in the name of business. This story needs to be FRONT PAGE NEWS!!!

    • Larry Doyle


      I am sorry to hear of your plight but am glad that you found Sense on Cents. I have written extensively on this topic.

      You can find all kinds of stories and info by typing auction-rate securities into the search window on any page here at my site. The insult to injury is the fact that the Wall Street regulator FINRA owned and sold $647 million auction rate securities in mid 2007.

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    Buchanan believes that free trade serves the interests of Wall Street, not Main Street. …. in return for the loss of industries and jobs that have been moved to … It will only keep his low or bring yours down. 27 of 31 people found the … Pat Buchanan’s.

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