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ARS Update: STILL Hostage in the ARS Roach Motel

Posted by Larry Doyle on March 6, 2012 4:38 PM |

Wall Street may think it is back to business as usual, but what about those investors and our fellow American citizens who were left behind and forgotten as a result of the crisis from 2008? Of whom do I speak?

The tens of thousands of our fellow citizens who remain hostage in the ARS Roach Motels.

Who are the managers of seemingly the most grotesque ARS Roach Motels? Oppenheimer Holdings and Pimco. How do we know? 

Daisy Maxey of Dow Jones provides a fabulous “ARS Roach Motel” review in writing just today at the Wall Street Journal how For Many Auction-Rate Investors, The Freeze Goes On:

As the uncertainty has lingered, investors have put off buying homes, expanding businesses or retiring. Others have stood by, their money on the sidelines, as financial markets made a tremendous recovery in the wake of the financial crisis and global recession.

Thomas Martin, president of Americas Watchdog, a private consumer group in Washington, said he has received phone calls from numerous investors still trapped. “Where’s the outrage?” he asked. “Here comes another spring and these poor people don’t know where their money is, what their retirement situation is; they’re forgotten. Where are the regulators?”

Where are the regulators? Yes.

Sense on Cents has been asking that very question for three years. Where are the regulators including the SEC to investigate the circumstances surrounding how Wall Street’s SRO FINRA liquidated its own ARS holdings in mid-2007, mere months prior to the ARS Roach Motels becoming fully occupied.

Do you think some of the current occupants of the ARS Roach Motels actually purchased ARS holdings which were previously held by FINRA? Those bonds previously held in the FINRA portfolio went somewhere.

Ms. Maxey continues:

The situation is fraught for investors. Many of those who can afford attorneys have hired them because they faced a statute of limitations on filing arbitration claims. Others fear they’ll be placed at the end of the line in any redemption process should they speak out. Brokers who hold the securities in their own accounts fear losing their jobs if they discuss the issue.

More of that famous Wall Street ‘code of silence’ in play at the ARS Roach Motels. How gracious.

Ed Dowling, the owner of a clothing maker in New York City, originally had about $2.6 million stuck in the securities and still has $1.175 million stranded, all of which were sold by Oppenheimer, a subsidiary of Oppenheimer Holdings Inc. “I think it’s absolutely foul and disgusting. I think the whole system is either broken or corrupt.”

Broken or corrupt? You think? Does not exactly sound like the type of accommodations most people would want, but what do you expect at the ARS Roach Motels?

For two big sellers of the auction-rate securities—Charles Schwab Corp. and E*Trade Financial Corp. —accords were struck to unfreeze investors. While some securities remain outstanding at the firms, the terms of the wind-down have been set.

BlackRock Inc.’s BlackRock Advisors said in May that it’s in negotiations with liquidity providers and will redeem outstanding securities over the next 12 months based on facts and circumstances surrounding each fund if those negotiations are successful. “There is no guarantee that all or a portion of a particular fund’s ARPS will be redeemed,” it said.

But investors who purchased shares from some firms, including Allianz SE ‘s Pacific Investment Management Co. or Oppenheimer, still have no explicit word on when or whether their investments will be redeemed.

Allianz told shareholders in a December letter that it’s evaluating market alternatives. It isn’t possible “to determine if and when a solution will be identified,” Allianz said at the time. Pimco had no further comment.

“No explicit word on when or whether their investments will be redeemed.” 

It isn’t possible “to determine if and when a solution will be identified”.

“No further comment”. 

These words, my friends, are how we define the accommodations at the ARS Roach Motels.

The issues at play are perhaps most acute at Oppenheimer, one of the largest sellers of auction-rate securities to individuals. It had about $377 million stranded in auction-rate securities as of Dec. 31, according to a regulatory filing by the company.

Most acute at Oppenheimer? Sounds like the worst ARS Roach Motel of all.

Steve Cohen, former chief of staff to Mr. Cuomo, said, “The auction-rate-security settlements speak for themselves, putting billions of dollars back into the pockets of victims across the country who were misled into believing they were buying cash equivalent investments”.

Speaks for themselves indeed. Over the last three years, the billions of dollars the industry has refunded actually amounts to pennies on the dollar. Thank you, Mr. Cohen.

Investors say they fear Oppenheimer is waiting them out, hoping they will sell at a discount on the secondary market in desperation before any redemption comes their way.

Phillip Aidikoff, a partner in the law firm Aidikoff, Uhl & Bakhtiari, has represented investors in about 50 arbitration cases related to auction-rate securities since the market froze. Most have been resolved through regulatory settlements or settlements with broker-dealers, he said.

The settlement Oppenheimer reached with Mr. Cuomo’s office was “stunningly inept,” Mr. Aidikoff said. “It allows the broker-dealer to do whatever it wants to do.”

“Stunningly inept” and allowing “the broker-dealer to do whatever it wants to do”. Oh yeah. That is how business gets done at the ARS Roach Motels.

One would not think that these are the types of accommodations people may want as they navigate the economic landscape.

Thank you Ms. Maxey for providing this fabulous update.

Isn’t it time to  subscribe to all my work via e-mailRSS feed, on Twitter or Facebook?

Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

Larry Doyle

  • Alycia

    I am currently a guest in the Oppenheimer Roach Motel. It has been 4 years and I along with Oppenheimer clients are held in a DEATH GRIP by Oppenheimer Management!!! How can these criminals get away with this. Where are our regulators, where is the media, where is our government. My Auction Rate Securuties are the same piece of paper as other broker dealers who did the right thing and returned clients money. This is FRAUD. Why is Oppenheimer getting preferential treatment???

    Does the financial world have amnesia? There is no excuse Oppenheimer, give all your ARS cients their money back NOW!!!

    Oppenheimer has committed FINANCIAL RAPE and has mugged its clients. Enough is enough!! Where is justice for all? The pain and suffering Oppenheimer has caused is dispicable. What kind of human beings run this company? The management of Oppenheimer walked all their ARS clients to the gas chamber!! This is worse than MADOFF!!!

    • Hi, Alycia: I’m a columnist looking to write about people stuck in Oppenheimer ARS. If you can talk about your experience, I’d love to hear more. Thanks, Al Lewis.

  • mikaele

    Oppco doesn’t care! I don’t think that’s the problem. It is the fact that regulators don’t do anything! Cuomo deal is the crime. I feel your pain Alycia. If we could get everyone of the opco victims together would have been great for leverage. One person doesn’t make enough noise.

  • WS

    Hi Larry,

    I recently received a letter from regulators in my state (the Texas State Securities Board) regarding my complaint against the firm that recommended Auction Rate Securities to me.

    The letter states they have completed their review of my information, and they have decided not to take regulatory action against the firm.

    I had filed the complaint in November of 2009.
    My frozen ARS were redeemed by Nuveen in Sept 2011.
    I lost approx $50K in a failed lawsuit to recover the ARS.

    When I spoke to the regulators on the phone yesterday, they said the reason for their decision was due to the fact that my ARS had been redeemed.

    They said the money I lost in the lawsuit was an issue between the lawyer and me, and has nothing to do with the investment firm.

    This seems unfair to me, because I think hiring a lawyer was the right thing to do based on circumstances at the time (the investment firm had abandoned me for 1.5 years, there was no new information from Nuveen about planned redemptions, statute of limitations possibly running out, etc).

    Anyway, I wanted to let you and others know about this recent decision by the Texas State Securities Board.


    • LD

      So you get three years of hell, lose the time value of money, and the firm walks away without any action being taken.

      Yeah, that sounds about right. What a travesty.

      Little wonder why people are fleeing the markets in droves and the distrust and disgust with Wall Street and Washington continue to escalate.

      Thanks for sharing your story. Regrettably, many thousands of our fellow Americans with billions of THEIR money remain frozen in ARS.

      Where’s the JUSTICE? Locked inside the coffers also holding the funds paid to Washington from their friends on Wall Street.

      Thanks again for writing.

  • Willy Wonka


    I have discovered the Thomas Martin that is quoted in this
    story was convicted of fraud, and spent time in federal prison for bilking his radio show listeners out of $1.68 million.

    He admitted in 1998 to the US District Court in Washington that he used his Seattle-based syndicated radio show to hawk his bogus “Michael T. Martin Mutual Fund”.

    Michael Martin says his private consumer group is located in Washington, this is really the state of Washington.

    In June 2009 he posted an article to one of his websites about a class action lawsuit against one of the issuers of Auction Rate Securities. When I called the number listed in the article I spoke to Michael Martin, and he referred me to an unscrupulous lawyer – Patrick Baldwin of Menlo Park, CA.

    I have attempted to find this article from 2009 using the Way Back Machine on, but have not been successful.

    Thomas Martin owns many of other websites:
    Lung Cancer Asbestos Victims Center
    Mesothelioma Victims Center
    (there are probably many more)

    I would like to find out how Michael Martin is being compensated by the lawyers.
    It is my understanding that it is against lawyer ethics for a lawyer to pay a non-lawyer for business leads.

    • LD


      Interesting comment. Thanks for sharing it.

      If true, Martin would certainly not be the first to prey upon those who had been scammed so as to add the ultimate insult to the most egregious injury.

      There is a special place in hell for all those who prey upon the innocent.

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