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ARS Update: Jefferson County, Oppenheimer Holdings

Posted by Larry Doyle on November 15, 2011 7:33 PM |

This file photo shows a Jefferson County sewer manhole cover in Railroad Park in Birmingham, Ala. Leaders of Alabama's most populous county voted to file an estimated $4.1 billion bankruptcy. The world of Wall Street may go on but for many tens of thousands of investors their financial world has remained locked in place since February 2008 when the $330 billion auction-rate market froze like the tundra.

The pain of that reality remains fresh for so many who remain unable to access THEIR cash and receive real justice for THEIR emotional pain and anguish.

Wall Street certainly wishes that this ARS issue could or would just go away. 

The media at large has never truly invested the time nor the effort to fully outline the nature of the ARS scandal and its accompanying impact on the lives of so many.

Regrettably all too many of those investors still holding ARS feel they dare not speak in case it may negatively impact the return of THEIR money.

This is all so wrong on so many fronts.  In any event, in the course of conversations with people well informed and intimately involved in this mess, I was informed of the following:

1. The total volume of ARS which remains outstanding is approximately $120 billion. Yes, that is $120 BILLION with a B. These ARS are held by banks, institutional investors, our fellow American citizens, and investors overseas as well. Lives and businesses have been derailed if not worse in many cases.

2. A regular reader of Sense on Cents recently inquired about the impact of the Jefferson County, Alabama default on the value of ARS issued by that municipality. I was informed that those ARS, which had been trading at 70 cents on the dollar have declined in value and are now trading at 60 cents on the dollar.

Those holding the ARS do remain creditors of the county but what they may receive and how long they may have to wait through bankruptcy proceedings is anybody’s guess.  This default and the bankruptcy proceeding are truly added injuries to what has been the ultimate insult for those still holding Jefferson County ARS.

The fact remains, although the ARS were sold as cash surrogates, investors unknowingly have had significant credit risk throughout.

3. The crowd at Oppenheimer Holdings (not to be confused with Oppenheimer Funds) continues to stand out as being the most egregious in terms of investor treatment. Oppenheimer does have “good” company in the crowd at Pimco but in terms of investor outrage, Oppenheimer ‘takes the cake’.

Oppenheimer buys back its own stock and goes about its business with VERY little attention paid to its ARS clients which continue to hold many hundreds of millions of ARS sold to them through the Oppenheimer system.

In fact in its recently filed Form 10-Q, Oppenheimer highlights on page 53 of that document that it is committed to repurchasing a whopping $40.2 million ARS by end of 2016 of the $402 million ARS still held by its clients.

Wow. What balls!!

A commitment to  repurchase a whopping 10% over the next 5 years. At that rate, they will be done in a mere 50 years. Oppenheimers’ clients primarily hold auction rate preferreds issued by closed end funds for which there is NO maturity meaning these ARS may remain outstanding for a VERY long time. This is SO WRONG!!

Despite the fact that then New York AG Andrew Cuomo negotiated a ridiculously poor ARS settlement from the investors standpoint with Oppenheimer, who in the regulatory and political realms are truly going to hold Oppenheimer accountable.

The individuals and institutions holding ARS sold to them by Oppenheimer should be first in line in terms of receiving cash distributions.

Stock buybacks? Why would Oppenheimer do that instead of taking those funds and repurchasing ARS.

Are there any Oppenheimer clients out there who would like to offer an opinion or say anything to Oppenheimer’s CEO Albert Loewenthal? Yes, Loewenthal, the guy whom I have been told dumped his own personal holdings of ARS shortly before the market froze.

The fight continues. I strongly encourage those still enmeshed in this mess to contact your respective representatives from the NASAA. Keep banging the drum!!

Questions, comments, constructive criticisms encouraged and appreciated.

Larry Doyle

Related Commentary
Sense on Cents/Oppenheimer-ARS

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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.

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