More Fun with Auction Rate Securities

Here you will find the all the exciting details of how to do business in America. This isn’t boring theory or textbook learning. All of the examples are from current, real-world events. Learn from the greatest American business institutions and people how to operate in the U.S.

American banks will many times sell products that devastate their customer’s financial health. Auction rate securities are one such product.

Here is a real world example. Oppenheimer and Company, Inc., a broker-dealer, agreed to restore $31 million to retail investors holding illiquid auction rate securities. Fourteen broker-dealers have settled with the New York Attorney General, Andrew Cuomo. These brokers have agreed to buyback $60 billion of auction rate securities from retail customers. A listing of the banks and broker-dealers can be found at the end of this post.

The New York Attorney General’s nationwide investigation “into the auction rate securities market found that auction rate securities had been marketed and sold as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.”

What does this mean to you? Banks and broker-dealers care about making money and will do anything to acquire it. They will sell you products ill suited to your investment goals. Banks should have known that auction rate securities carried more risk than money market investments. Yet they sold them to retail and corporate clients as cash-equivalent products. Were the banks ignorant and incompetent as regards the nature of auction rate securities? Did the banks know the risks of auction rate securities and decide to sell them to unsuspecting clients as cash-equivalent products anyway? You can decide for yourself.

Realize that the settlement applied to retail customers only. Corporate customers have experienced great losses associated with auction rate securities. Corporate customers were expected to know the risks involved and will not receive settlements. How does this make you feel about the competence of financial professionals in some of America’s largest corporations?

Some corporations have sued the banks to recover losses from auction rate security investments (WSJ January 2, 2010). They will not receive a settlement. Corporate CEOs, CFOs, and treasurers are expected to know what their doing when creating and implementing an investment policy. Their investment in auction rate securities demonstrates their ignorance and incompetence regarding investment products.

Please remember that all these banks and their employees are still providing investment advice. The banks paid a fine but they are still able to dispense potentially devastating investment advice. You have been warned. This is how business is now done in America.

Scumbag Banks that sold auction rate securities as “cash-equivalent products”
Oppenheimer and Company, Inc.
Banc of America Securities LLC and Banc of America Investment Services, Inc.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Deutsche Bank Securities Inc.
Fidelity Investments
Goldman Sachs & Co.
JPMorgan Chase & Co.
Merrill Lynch
Pierce, Fenner & Smith Inc.
Morgan Stanley & Co. Inc. and RBC Capital Markets Corporation
TD Ameritrade, Inc.
UBS Securities LLC and UBS Financial Services, Inc.
Wachovia Securities LLC and Wachovia Capital Markets Inc.

Source: Website of the New York Attorney General. Story reported on February 24, 2010.

U.S. Banker Incompetence or Fraud

Here you will find the all the exciting details of how to do business in America. This isn’t boring theory or textbook learning. All of the examples are from current, real-world events. Learn from the greatest American business institutions and people how to operate in the U.S.

U.S. bankers often sell products to their customers that are detrimental to their customer’s financial well being. Remember that bankers care more about earning high fees and commissions than your financial goals.

Here is a real world example. In August of 2008, several banks agree to buy back auction rate securities from retail investors and pay fines. Many times the banks told their customers that auction rate securities were as safe as money market investments. They weren’t. Maybe the banks actually believed the auction rate securities were safe as money market investments. In that case, the banks were incompetent. Maybe the banks knew the auction rate securities were not very safe and sold them to their customers anyway. In that case, the banks committed fraud. I expect fraud. None of the bankers went to jail.

Here is deal the banks accepted in August of 2008.
JP Morgan Chase agreed to buy back $3.0 billion of auction rate securities from retail customers and pay a fine of $25 million.

Morgan Stanley agreed to buy back $4.5 billion of auction rate securities from retail customers and pay a fine of $35 million.

Citigroup, Inc. agreed to buy back $7.0 billion of auction rate securities from retail customers and pay a fine of $100 million.

UBS AG agreed to buy back $20.0 billion of auction rate securities from retail customers. I did not find documentation as to the fine paid.

You think this is bad. Wait until you hear how the banks screwed their corporate customers by marketing auction rate securities.

What does this mean to you? Remember that bankers care more about earning high fees and commissions than your piddling financial goals. Bankers only want to maximize fee and commissions. Banks don’t care if you go bankrupt due to their advice. In fact, they laugh about how they screw over their customers. They think it is hilarious. This is how business is now done in America.