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February 14, 2008-2011: Auction Rate Securities Nightmare Continues

Posted by Larry Doyle on February 14, 2011 7:36 AM |

“Take it, Phil. It’s free money.”

With that statement the saga of noted author Phil Trupp into the world of auction-rate securities commenced. Phil’s nightmare experience with auction-rate securities mimicked that of so many other tens of thousands. Three years to the day after the ARS market totally collapsed, that nightmare in which investors remain unable to access their cash from their supposed cash-alternative investment continues.

Selected financial regulators, such as FINRA, have the balls to promote the success they have had in recouping ARS investors funds. Let the record show, though, that three years to the day when the ARS market froze, approximately 40% of investor funds remain frozen. Their nightmare continues. Who is standing up and fighting for these ARS investors?

What have been the great lessons of the ARS nightmare? So many lessons but, in my opinion, the following truly stand out:

1. Confirmation that the financial industry has no real interest in protecting investors.

2. Regulators are increasingly incapable of protecting investors from those who would prey upon them. (Regular readers are well aware of the fact that the regulator FINRA dumped its own ARS holdings mere months before the market totally froze. I first unearthed the fact that FINRA’s own internal investment portfolio held $647 million ARS on January 16, 2009, the day of Mary Schapiro’s confirmation hearing to be SEC chair. I wrote, Let’s Really Question Ms. Schapiro…) We learned that FINRA dumped these ARS holdings in late April 2009 in a Bloomberg article, which I referenced in writing, “FINRA Is Supposed to Police the Market”.

3. Brokers and others distributing structured financial products, along the lines of ARS, have limited understanding to the true embedded risks in these products.

4. State regulators with few exceptions are ill prepared to defend their citizens from those who sell and market scams such as ARS.

5. The financial media specifically and general media at large have limited willingness to take on an industry as powerful as Wall Street and truly call out the vermin who screwed our brothers and sisters.

I have never owned an ARS but I will never forget those enmeshed in this nightmare. As we continue to bring light to this ARS darkness, the lessons learned for others in our nation are so valuable. If you would like to learn so much of what really happened in the ARS saga, I strongly encourage you to pick up a copy of Phil Trupp’s Ruthless: How Enraged Investors Reclaimed Their Investments and Beat Wall Street.

While 60% of ARS funds have been returned, the refunding of the remaining approximately 40%, that total approximately $130 BILLION (yes, billion with a B!!!), presents a far greater challenge. Why is that and what is my concern?

Auction-rate securities were utilized to fund a wide array of municipal entities, such as hospitals, schools, sewer systems, and the like. I am concerned that in the current environment, these entities will be increasingly challenged to finance operations and may suffer a higher level of default as a result. I do not want to alarm investors who continue to hold out hope for a full return of their cash, but I believe those who continue to hold ARS should definitely determine what entity holds the debt backing your ARS. From there, you should determine the relative financial health of that entity. Are they at risk of default? Are they able to finance ongoing operations? Can they continue to service their debt? These are critically important questions at this juncture.

Be “ruthless” in your pursuit of this information. Do not sit idly by hoping a check will show up in your mail. From there, you will be better prepared to determine what to do with your ARS. Let me know what you learn so collectively all ARS investors may benefit from the knowledge gleaned.

I wish you all the best. Please know I will continually try to bring light to this nightmare and pressure on the industry and regulators on your behalf.

There is real power in sharing information. For those who have meaningful details related to the ARS nightmare and which may help others, please share them here. If you merely want to express your outrage or emotions at specific organizations, feel free to do that as well.

Larry Doyle

Sense on Cents Related Commentary
Sense on Cents/Auction-Rate Securities,

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own and not those of Greenwich Investment Management. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Bob

    Three years ago our money became frozen. Karen Tyler, then head of the multi-state task force created soon after the freeze, vowed not to stop working until all the brokerages had “forced recission” and had returned our money. Sadly, the commission gave up long before now. Apparently. Maybe they’re still working on it, although I see no evidence of that.

    Here’s her contact info, beginning with email address. Drop her a note and ask what happened. Tell her Oppenheimer & Co. targeted elder investors and that by stoping before the mission was completed she harmed American seniors. Though she’s no longer head of the task force she made the promise to us that was never fulfilled.
    600 East Boulevard Avenue\Bismark, ND 58505

  • Jimmy Williams

    Amazing that it’s been 3 years and still they are stuck! Oppenheimer is the worst of them, clearly. They pretended to be an ‘adviser” and yet they put people into quicksand. How can they sleep at night?

  • Floyd

    oppenheimer lied and tried tointimidate clietns post-crash. Their brokers and execs should be in prison. This is not the only scasndal they’re involved with – google it.

  • Floyd

    What oppenheimer has done to my family and myself is criminal.

  • It’s an unhappy anniversary that shines a spotlight on those financial firms who, three years later, still refuse to do the right thing. And it’s not as if outfits such as Oppenheimer are broke and unable to make their ARS victims whole. If anything, they are more prosperous than ever. Oppenheimer, for one, has expanded like a virus into Asia, making new hires, paying generous dividends, and opening new “cells” in the American mainstream.

    Oppenheimer is perhaps emblematic of the Wall Street ethic, or lack thereof. One would think that in a modern world the ARS scam would be put to rest by now, that the financial services firms which created this $336 billion fraud would have made its victims whole. But that’s not how it works. What most of us think of as civilized behavior comes to an abrupt halt in Lower Manhattan.

    We are still smarting over the terrorist attacks of 9/11. Those terrorists of 2001 caused the loss of much blood and treasure. But life-for-life, dollar-for-dollar, economic terrorism has probably come at an even higher price. We will never know the true extent of the damage caused by the Oppenheimers among us, the E*Trades, the Schwabs, et al.

    Do these economic terrorists brood over the damage they have inflicted on countless lives? No, because the destruction is out of sight and therefore out of mind. As my mother used to say, “No brains, no feeling.”

    In my three year battle trying to help ARS victims I have met a few very strong and good people–people like Larry Doyle, Kathy Kane and Daisy Maxey, who, among others, rank at the top of my list. They are, unfortunately, outnumbered by industry types fully aware that the ARS meltdown was a scam and a deception. The perps blame their victims and posture as “the best and brightest,” yet their hypocrisy and double-dealing would make ordinary gangsters blush.

    Though I hate to say it, the ARS battle won’t end anytime soon. Wall Street worships the dollar in the same way zombies worship the warmth of life. Honesty? Integrity? Common decency? You will find more of those virtues behind the bars of your local lockup than in the obscene office suites of our financial terrorists.

    But if the money-cons think they can forever get away with ruining lives and staining the fabric of our culture, I give them fair warning: Nothing lasts forever. What goes around will surely come around in ways they can’t imagine. Those who have been injured know how to fight. In the end, the ARS banksters will not win; their losses will not be small, and the harm they have inflicted will never be forgotten.

  • Kathy

    Superb list, Larry, and a cautionary tale for anyone involved in, well, the US economy on any level.

    Those who didn’t own ARS may read this post and think it’s extreme. It isn’t.

    You go to a bank. You give the bank cash for safekeeping. They give you a receipt for cash. Then they won’t give you back your money. I know I felt cheated and deceived.

    Ask why $130 billion hasn’t lit a fire under anyone. And don’t turn away from the ugly answers described above.

    We call on Oppenheimer & Co and E*Trade to give back the money. We call on Pimco and BlackRock to refinance the ARS it continues to profit from. We call on the SEC to tell us why, exactly, they think $130 billion is beneath their attention.

    And we call on Congress to drop the sanctimony. You want a functioning economy? Compel honesty.

    • Thanks Kathy,

      “You want a functioning economy? Compel honesty.”

      Well stated!

  • Kathy

    This superb list is an indictment of our financial system.

    For those who never owned ARS: You may think this post is extreme, but it isn’t.

    You give your cash to a bank. The bank takes it and gives you a receipt. Then they refuse to give your cash back. I know I felt deceived and cheated.

    We call on Oppenheimer & Co. and E*Trade to give back money they took for investments that were misrepresented. We call on Bill Gross at Pimco, and on BlackRock, to refinance these ARS and stop making money off them. We call on the SEC to explain why it is beneath them to investigate and resolve a $330 billion collapse. And we call on Congress to drop the santimony. You want a functioning economy? Compel honesty.

    Ask yourself why no one can be bothered to unfreeze $130 billion that could energize our country’s finances. Then don’t turn away from the ugly answers outlined by the comments on this post.

    Three years. It’s a national disgrace.

    • Well said, Kathy.
      Financial fraud is at plague levels. This morning, for instance, I was contacted by a securities attorney working on a case against Merrill Lynch. ML invested church funds in a John Paulson-style doomed-to-fail derivative; and, on schedule, the derivative proved to be worthless. “Can you imagine–a church, just screwing a church?” the attorney complained. ML probably bet against the derivative, he added. Yes, of course, that’s exactly the tactic: bait and cash in. Same business model as ARS. I’m afraid the government is unwilling or unable to put a stop to the thievery that has been the hallmark of Wall Street from its very earliest days. IMHO, the only real solution is to educate each and every citizen to the reality of the financial world. Until then, we can expect the industry to openly pursue and refine its immoral business model, with a wink and a nod from its enablers in Washington.

      • Kathy


        This is where the so-called “rational market” has led. Screw anyone, anytime, doing any kind of humanitarian work — as long as it makes a buck.

        Are we as a country truly no better than that?

        This behavior has become so deeply woven into our economic system that it will take a major commitment from an electorate bent on justice to fix it. I’m not optimistic.

  • ARS Victim


    Your list was brilliant. I would love to see that as an editorial in the Wall Street Journal! I think it summarizes the problem succinctly and honestly. It is frightening.

  • Mark Reinnoldt

    Don’t forget those crooks at Raymond James. We sold our home 3 years ago and were told by an employee working their bond desk that the ARS was a perfectly safe place to hold our money until we needed it. He touted a slightly better yield than money market, AAA rated, and insured. Never mentioned ANY risk factor but said it was as good as cash.

    I will NEVER trust Raymond James again and advise you all the same.

  • D. Duck


    We will be getting our money back soon according to a new Press Release from the S.E.C.

    Great job S.E.C.!

    • LD

      Mr. Duck,

      I have to admit, for a second you had me. I appreciate your sense of humor in the midst of the ongoing pain and anguish of the ongoing ARS nightmare.

      Well done!!

      I guess the biggest JOKE of all is the ineptitude of the SEC and FINRA to help investors.

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