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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.


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