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Raymond James Apology for Auction-Rate Securities

Posted by Larry Doyle on January 7, 2010 1:25 PM |

A friend of Sense on Cents informed me the other day that Tom James, chairman and chief executive of Raymond James, issued an apology to the firm’s clients involved in the auction-rate securities fiasco. Wow! Given my keen interest in this topic and my empathy for the investors who have been abused by the industry, my heart raced. An apology by the head of a firm the size and scope of Raymond James is deeply meaningful.

Upon review of the article, Tom James Apologizes for Auction Rate Securities Purchases, published in the Tampa Bay Business Journal, I witnessed that it was written January 5th. Breaking news!  Then I realized it was written January 5th but 2009!

Regardless of the fact that the article was published a year ago, I continued reading intrigued to learn more about this situation as it stood a year ago. The Tampa Bay Business Journal reported Tom James saying:

For clients who purchased the securities through Raymond James, “I apologize for being involved in your purchase of these securities,” said James.

Several firms, primarily underwriters of the securities, have begun to repurchase the securities, and James said he had hoped most of them would have been refinanced by now. However, the lack of liquidity and credit in the financial markets has yet to be alleviated in spite of regulatory efforts, James said.

James said Raymond James has not repurchased the securities it sold because it does not have access to the needed financing at this time to buy back anything near the $1 billion outstanding. However, he said the company might be able to get a bank loan to buy back the securities when it becomes a bank holding company, a process it expects to complete by June.

James also said that if the company could buy back the securities, regulators would not give Raymond James any “regulatory net capital” credit for the securities, because they are illiquid.

“The illiquidity of auction rate securities is one of the manifestations of the ‘perfect storm’ in the financial markets,” James wrote.

James also disclosed that he personally owned a large number of auction rate securities on Feb. 12, when the auctions failed, and still owns a large number. “We will redeem all customer holdings prior to redeeming the holdings of our employees,” he said.

While I initially dismissed this article as old news, I rethought and realized it is actually more meaningful now a full year later than perhaps when it was initially printed. Why? What has really changed over the last year? What firm, what government agency, what regulator is willing to stand up and represent the collective interests of those individuals who purchased auction-rate securities?

Institutions are now purchasing ARS on the secondary market at depressed levels in hopes of utilizing their leverage over the distributing banks and dealers to redeem the securities at or near par.

Why hasn’t FINRA, the SEC, the U.S. Treasury or Federal Reserve formed an ARS Initiative to create massive and collective leverage over the financial industry to redeem these instruments which were fraudulently promoted as cash equivalents? Before a dime of taxpayer-assisted funds is paid in Wall Street bonuses, ARS investors should be made whole. Why? It’s their money. Tom James knows that. He apologized for that very reason.

Although Tom James apologized a year ago, what has really changed? From my standpoint, nothing has changed. A relatively small percentage of ARS have been redeemed, but ARS investors remain largely disenfranchised.

Will another year go by before America forces the financial industry to make these investors whole?

Will FINRA be required to uphold its charge to protect investors?

Or will the little guy continue to get screwed?

Tom James seemed to have a conscience a year ago, but would he have the heart to speak out for all ARS investors at this point? What about Pimco’s Bill Gross? Blackrock’s Larry Fink? Where’s FINRA’s Richard Ketchum? The SEC’s Mary Schapiro? The silence is truly deafening.

Who is willing to stand up for the disenfranchised ARS investors?

America waits.


  • outraged citizen

    And why do we not hear anything from Albert Lowenthal, the CEO at Oppenheimer & Co.? He’s been leaving his clients in the dark, and doesn’t seem to care one way or the other if they ever get out of the “Cash Equivalents” his brokers put people’s life savings into. What a criminal.

    • Larry Doyle


      The Oppenheimer trial in Massachusetts was supposed to start in early December, but was pushed back to late January. I was informed that a MA state regulator who was heavily involved in the investigation has moved to the SEC. It will be very interesting to see if that individual can and will be called as an expert witness in this trial.

      Here’s hoping Lowenthal is compelled to testify.

  • Dave

    Oppenheimer and Co. is the worst of the worst. The rude response, angry emails “from them to clients!) and hideous, unethical behavior is contemptible. I hope Lowenthal does hard time. Oppenheimer sucks.

  • LD:

    KEEP THIS FORUM ALIVE ! I was fooled by the RJ article too, saw Jan 5th, guess I am living in 2009 still. however you bring up an excellent point!

    IF I ever get redeemed at E*Trade I hope to send you a nice bottle or two of fine wine!

    E*trade also sent me threatening letters to the effect, “that I better not inquire further about the frozen Auction Rate Securities in my IRA… or else”! I wonder what they meant by or else? Are they going to murder a client? THIS FROM THEIR COMPLIANCE DEPT. WRITTEN BY A JERK WHO WAS A LIFE INSURANCE SALESMAN ONLY 15 MONTHS AGO.

    To “Dave”, I could substitute E*Trade for Oppen.. , we are living the same hell buddy.

    I nominate E*Trade, Schwab & Oppenheimer as the worst brokers in a race to the bottom.
    Why the intransigence? They are only losing some of their biggest customers, and soiling their brand name further. I transfered out all but the ARPS at E*Trade. In three years I generated $50,000.00 in commissions for them, and they balk at redeeming 2 ARPS in my IRA acct ? They are morons, or too broke themselves to pay back $50K, if that puts them in a net capital violation, then they should be shut down!

    FINRA, the SEC, and AG’s should at least start jawboning these pond scum into repentence.
    Notice how CNBC ignores it ? Cant upset the advertizers.

    We have to keep up the pressure.

    ps E*Trade even apparently blows off an arbitration claim filed against them with no response. Doesnt FINRA have to at least fine them ?

    This situation is beyond outrageous. The FEDs throw billions of printed money to stimulate the economy and billions at banks, and us little investors get NADA.

    If they just freed up the ARPS market 150 billion would be put into the economy at no expense to the taxpayer, where are these fools ???

    • Larry Doyle


      Rest assured, Sense on Cents will continue to hit this heavy bag and keep punching. You and every other ARS investor deserves it. Not a wine drinker, but I appreciate the thought.

      Please feel free to forward my commentary to whomever you want in the media or around the internet so the power of this forum can make its presence felt.

      Given the way the internet works, do not think for a second that these firms do not see and read these commentaries. They do. I know it and see them.

      The fight continues. Stay energized.

    • Bill

      Don’t hold you breath for FINRA to do

  • Kathy

    Larry, you raise a very important point abotu the failure of Congress to address the ARS freeze in nearly two years after the fraud.

    This money should be in the economy. Massive fraud should not be ignored. But it’s business as usual among the regulators and in Congress.

    But who will investigate those who should be doing the investigating?

    At least James had the decency to apologize.

  • coe

    What else can be said? When this type of institutional hubris and massive insensitivity is allowed to persist at the expense of the “little man”, and the collective silence is deafening…well, revolutions and wars have started with these symptoms or less…I do have a quasi-solution to consider – why doesn’t the almighty Treasury redirect liquidity to the brokers, who then can “lend” it to the ARS investors at zero-percent interest for the life of the security or until some redemption premise rises from the ashes? Most of the “banks” involved have access to the Fed window…and you know quite well that this access is indeed being put to use for other “client related” purposes…I’m probably missing something in this simplistic approach, but it is worth a discussion, is it not?

    • Larry Doyle


      I agree. The investors should be given access to the Fed’s window, at least temporarily. In doing that, though, does that give the distributing banks and brokers less reason to try to redeem the securities.

      The fact that little to nothing is being done across the board for ARS investors does speak to the massive ineffectiveness of the financial regulatory system.

      FINRA? Wouldn’t it be nice to pull the trade tickets highlighting FINRA’s liquidation of its own ARS position in mid-2007. Do you think that FINRA sold its ARS at par? I’d love to know if those specific bonds have matured or are in another investor’s portfolio right now.

  • lily

    It is disgusting and outrageous that the regulators, Congress, and all of the other entities mentioned in posts above have deliberately ignored the fact that innocent regular people are still waiting for their money to be returned. This just proves how corrupt our financial system really is.

  • jim

    Larry, I am new to Sense on Cents and wish I had seen your site earlier – thanks for giving the ARS fraud & FINRA’s role such great exposure. Please continue to keep up the great work on behalf of all us ARS casualties – I will share the posts around the internet whenever possible!

    • LD

      Thanks Jim,

      I have written extensively on the ARS topic. To access all my work, read Sense on Cents/ARS

  • C. L. Shapleigh

    Thanks for keeping this issue alive … My experience with Raymond James has been most disheartening. We have had the same broker there for nearly thirty years, and I am now in the process of trying to get his certification as a ‘Financial Advisor’ lifted. RJ’s defense in selling these things is that the confirm warned of the possibility of failed auctions. The fact that the confirm arrives after the sale and settlement doesn’t seem to bother RJ, or the SEC, or FINRA. Perhaps we should all go to the FTC, which has specific rules against ‘bait and switch’.

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