New York Attorney General Launches "Industry" Probe into Auction-Rate Securities
New York State’s attorney general, Andrew Cuomo, has launched a broad investigation into the auction-rate securities debacle. Mr. Cuomo’s investigation is sweeping in nature and includes inquiries into the distribution, sales, and marketing of auction-rate securities, what municipalities or other issuers were told about such securities as an inexpensive method of financing and whether auction-rate securities were sold to investors as safe, liquid investments. Cuomo's office considers the investigation an "industry case," which means that officials are looking into all aspects of the auction-rate business.
Earlier this week, Cuomo subpoenaed 18 financial institutions including Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. Merrill Lynch & Co., and UBS AG. Sources say that the attorney general plans to subpoena others soon.
Auction rate-securities are long-term investment instruments used by closed-end mutual funds, municipalities, schools, and others to raise money paying short-term interest rates. The $330 billion market collapsed when securities firms stopped bidding in the market and demand for the auction-rate securities dried up. When auctions failed, many auction-rate securities, primarily those issued by municipalities and non-profit organizations, reset to much higher interest rates and created serious financial burdens on the issuers of the securities. Other auction-rate securities, primarily those issued by closed-end mutual funds, reset to lower rates and paid unusually low returns to investors. In both cases investors are facing the prospect of holding their investments for much longer than had been represented.
In other news this week, the North American Securities Administrators Association announced via press release that at least nine other state securities regulators are also investigating the auction-rate securities markets. Their efforts will be coordinated through a task force led by Massachusetts Securities Division director Bryan Lantagne. According to the press release, members of the task force include members from Florida, Georgia, Illinois, Missouri, New Hampshire, New Jersey, Texas and Washington.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their auction-rate securities investment problems. For further information, please contact us.
