Sense on Cents

I know fraud when I see it. I also know a miscarriage of justice when I see it. The manner in which auction-rate securities were distributed was a fraud. The manner in which this fraud has been largely adjudicated has been a massive miscarriage of justice. No miscarriage has been greater than that laid at the feet of those auction-rate securities investors who purchased ARS from Oppenheimer and Company.

In true American patriotic spirit, these ARS investors are not taking this injustice sitting down. I have never owned an auction-rate security, but I welcome joining their fight and highlighting their cause. On that note, Andrew Cuomo should watch out. A group of Oppeneheimer ARS investors just released the following statement:

As most of you know, in late February New York Attorney General Andrew Cuomo struck a deal with Oppenheimer & Company requiring the firm to pay back a small percentage of the auction rate securities they sold. About five percent of the total outstanding. This contrasts with the deals Cuomo and Mr. Galvin, Attorney General in Massachusetts, (LD’s edit: Galvin is actually MA Secretary of State. Martha Coakley is MA AG) made with every other firm requiring a 100 percent pay back. Oppenheimer clients are of the opinion that Mr. Cuomo’s “settlement” is woefully inadequate and was made for political purposes before his likely run for governor.

We feel that by agreeing to this “settlement” Mr. Cuomo shows that he’s willing to side with corrupt firms like Oppenheimer at the expense of the “little guy” working citizens whose money remains trapped. Oppenheimer also has many senior citizens who are stuck in auction rates. Thus one can reach the conclusion that Mr. Cuomo sides with big business over the elderly. We hope to get this message out to groups of seniors by virtue of an interview with AARP magazine among other avenues.

The money that is still frozen would be used to buy homes, automobiles and fund college educations in New York, Missouri, California and other states. This continues to be a great anchor on the financial recovery in this country. To allow Oppenheimer to not redeem ARPS is unpatriotic.

Who are we? A contingent of Oppenheimer clients, frozen in auction rates for two plus years. We’re mainly comprised of New York residents, although our members come from seven states. We’ve largely supported Mr. Cuomo in the past and feel let down by a man we looked up to.

Oppenheimer pleaded poverty to N.Y. regulators. That was the rationale for only requiring them to pay back five percent of what they owe. Yet, since the “settlement” in late February, Oppenheimer has been on a spending spree, in the past eight weeks announcing the following: expensive new hires for several offices, including Newport Beach, California; an announcement that the firm is expanding operations into Asia, in the hopes of soon becoming the biggest U.S. brokerage doing business there; paid a healthy dividend; announced a generous buy back (things that only healthy firms are able to do.); and, Oppenherimer CEO Al “Bud” Lowenthal announced last week that Oppenheimer made a profit for the first quarter this year, something many of those firms that agreed to pay back 100 percent of ARPS did not. Lowenthal also said that Oppenheimer’s future looks bright.

Per the “settlement” with New York, Oppenheimer is allegedly up for review every six months to see if its financial condition has improved. I think anyone with access to a newsstand or the Internet can clearly see that Oppenheimer is in solid financial shape.

Pre-settlement Oppenheimer updated frozen clients with regular mass emails on the frozen ARS market. Once the settlement was reached, those updates stopped abruptly. We feel strongly that these updates were for the benefit of regulators who were deciding Oppenheimer’s fate. Once that fate was decided, and Oppenheimer had erroneously convinced regulators that they cared about their clients, there was no need to keep clients informed. Indeed, Oppenheimer has shown a total disregard for clients throughout this ordeal. We’ve been subjected to hostility, anger, fabricated emails and veiled threats from those to whom we entrusted our money.

We consider the five percent “settlement” to be a joke. Whatever the reasons Cuomo struck such a sweetheart deal with Oppenheimer at the expense of citizens who work so hard for their money is beyond our grasp. Yet we will remain silent no longer.

Going forward, and accelerating as Mr. Cuomo announces his likely run for governor, we will attempt to do as many print, radio and television interviews as possible, explaining that we think the New York Attorney General’s office reached a deal with Oppenheimer that displayed a callous favoritism for Wall Street over Main Street, and for big business over working people. It’s David vs. Goliath, and Cuomo sided with Goliath.

Our attempts to discuss this matter with New York regulators, and to see if in fact things could change with the six month review, have gone unanswered. Our calls and emails to New York state regulators largely go unreturned. When they do respond, they usually say the office is backed up. Let me point out that auction rates remains a $150 billion problem. By comparison, Madoff is a $60 billion problem. Also, Madoff victims invested in the stock market where you must be prepared to lose all you invest. Oppenheimer victims were told we were investing in a CD-like certificate that was “as safe as safe can be.”

We feel that the financial media, with a few exceptions, has been largely neglectful in reporting the story. It’s our hope that as Mr. Cuomo perhaps campaigns for governor of New York and we bring the injustice that we’ve suffered to light, that this neglect will be rectified.

Perhaps the best way to rectify this situation would be for New York to follow through on the threat to invoke the Martin Act, when and if Oppenheimer is actually up for six month review.

Thanks,
Oppenheimer Auction Rate Clients

If you care about decency and fairness in our society, please share this commentary with friends, family, and colleagues. The auction-rate securities market remains the single greatest fraud ever perpetrated. Cuomo’s settlement with Oppenheimer is nothing more than a massive insult added to a debilitating injury. In agreeing to this settlement, Cuomo shows himself to be a fraud as well.

LD

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This entry was posted on Thursday, May 13th, 2010 at 7:30 AM and is filed under ARPS, ARS, General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.