Securities Law Blog

Nine state regulators are investigating the collapse of the auction-rate securities market and are coordinating their efforts through a task force, the North American Securities Administrators Association said. Regulators in Florida, Georgia, Illinois, Massachusetts, Missouri, New Hampshire, New Jersey, Texas and Washington are probing whether brokers misrepresented the auction-rate securities they sold to individual investors, according to the Washington- based group. ``If the product was represented as a cash equivalent going in, it must be treated as a cash equivalent coming out,'' said Karen Tyler, the president of the group and the securities commissioner in North Dakota. Massachusetts Secretary of State William Galvin on March 28 said his office is investigating the sale of auction-rate securities by UBS AG, Merrill Lynch & Co. and Bank of America Corp. after investors complained they were unable to liquidate bonds that the firms told them were equivalent to cash. A number of individual investors have also filed lawsuits against the Wall Street banks that sold auction-rate bonds. Investors and dealers began to abandon the $330 billion market in February on concern that creditworthiness of companies insuring the bonds was deteriorating because of losses they took guaranteeing debt backed by subprime mortgages. Thousands of auctions have failed, data compiled by Bloomberg show. When an auction fails because of lack of demand, rates are set at a ``penalty'' level determined at the initial bond offering and holders are stuck with the securities.

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.