When the collapsed Auction Rate Securities (ARS) market gets personal

I just throw into this mix one more legal aspect to consider when we are all trying to get our minds around how to proceed: statutes of limitations.
Attorneys for the brokerages and funds are going to try to argue, whenever they can only vaguely muster an attempt, that statutes of limitations on our claims have expired. Time is on their side. The longer the funds sit around wringing their hands and professing to be working on a solution, our clock is ticking you can be sure.
I really like the insurance angle raised by one blogger here, the fact that E&O should cover an individual broker's failure to disclose and that if the insurer doesn't pay there may be bad faith damages to pursue (in SOME states--the insurance lobby managed to do away with bad faith liability in others, & pursuing them even where they exist is a whole other legal can of worms). BUT ditto the statute of limitations if you want to file for insurance to cover the individual broker: how long do you have after discovery of malfeasance to file the claim against the broker and make the insurer's deadline??? Check on it, everybody.

This may or may not be correct but I believe I remember something about two years from when it was discovered or three years from when it occured, whichever comes first. I would think that time would be on your side since these auctions were held usually either weekly or monthly. If any of you haven't told your advisor/broker to sell these securties, be sure to do so now and perhaps that would start the clock ticking. However.....I'd like to hear from someone in the biz who definitely knows the answer.....or perhaps an attorney who specializes in this type of litigation.

I seem to remember something about two years from date of discovery or three years from date of occcurence....whichever comes first. I would think you would be okay since these auctons were held weekly or monthly.....although I would imagine that you want to have a current sell order in place right now just to be sure. At any rate....I think it would be best to hear from someone who is in the biz....or an attorney who specializes in this type of litigation.....since I am definitely not positive about the dates.

I seem to remember something about two years from the date of discovery or three years from the date of occurence....whichever comes first. I don't know if that includes fraud. Since these auctions are held either weekly or monthly.....it seems like time would be on your side. I would imagine that it would make sense to be sure that you have sell orders in right now for these frozen securities....perhaps that would help with the time frame. With that said....I am not at all positive about the statute of limitations so I'd definitely wait to hear from someone who is in the biz or and attorney that specializes in this type of litigation.

The brokerages are giving margin loans at 75 to 100 basis points over libor. This is a lower spread than what we are earning on the securities. The problem is the risk of a margin loan. I am concerned that the securities could be valued lowered than par and margin calls made on our positions. Does anyone have any comments on this?

Put your brokerage company on notice by demanding back your money.

Put your investment advisor on notice that he/she has a personal liability if they breeced their fiduciary responsibility. They have insurance from the industry and they are also likely to have errors and ommissions insurance. They probably have a personal liability if they misrepresented these investment vehicles, contact your attorney.

Contact your Representative in Congress and tell them of the gross misrepresentations and all the lies. Folks this might be big the biggest fraud in history. Time is of the essence!

This is not a front burner issue in this mess, but many will be wanting to establish new brokerage relationships at some point. From what I've seen many of the biggest names have been implicated in this. I got sold this fine Nuveen investment opportunity by TD Waterhouse, now TD Ameritrade. I've had most of my assets with Fidelity Investments for years. That figure just increased, as I transferred a chunk of cash from Td Ameritrade. I have not seen Fidelity's name come up in this so far. I asked a Fidelity rep about these ARPSs. He said to the extent somebody wanted to invest in them, they would have provided assistance, but it is not something they have promoted, or words to that effect. I can say for a fact that none of their reps ever mentioned this to me, and I talked to them quite a bit more often than TD Ameritrade. But do your own due diligence.

Bill

I was early to this thread as was Lisa, and many of the facts some are just now waking up to were obvious to me 5 seconds after I first heard of this problem on 2/19.

1) Ponzi
2) Deleverage
3) Long Time to get out of this in one piece

I think it's clear that the funds MUST have known the ARPS were a timebomb. How could they not have? If they claim they had no idea, then they look really stupid, no? This was happening right in their faces, and I'm sure the banks and auction runners must have said something weeks or months before the implosion.

Muni issuers are a different story, and are more like WE , the retail ARPS holder. They are paying out a much higher rate than they expected. In the case of CEF ARPS, they are benefiting from the illiquidity in many cases, if not all.

It's taken a few weeks but I'm glad to see the press finally showing some outrage.

I agree with some of the posts that dispute the claim that they don't have to deleverage OR refinance. I think they do and should be forced to do so.

If that is not done you have a huge class of investor who will be an enemy for life. Not good for business, current or future.

I think ARPS holders need to attend the upcoming annual meetings of the funds, prepared to argue their interests and outrage in a noticeable way.

Keep up the good work, this is probably the most informed set of posts on the net regarding this issue.

You would need to be careful taking a loan at 50% of the value of you securities. When the loan comes due, you won't have any money to repay and if your firm doesn't renew then they take 100% of you value. And believe me, you at this time can not trust them.

Bill: I was also sold these securities by a “fixed income specialist” at TDAmeritrade. I wonder how brokerages like TDAmeritrade will be viewed (in court) since most of their accounts are self-directed. This is in comparison to brokerage accounts at Morgan Stanley or Merrill Lynch where the brokers make many of these trades decisions without consulting their clients. Any thoughts on this?

Thanks for the recommendation on Fidelity….

My email is lasherm1 at yahoo.com. We should stay in touch if this does not get resolved soon & legal action is required.

Another side note. I'm seeing mention of secondary markets offering very LOW prices for your ARPS.

I would advice not selling to ridiculous bidders , especially at this early date.

Remember, there is virtually NO CREDIT RISK to your ARP. Selling it at say 60 or 70 cents on the dollar in a panic would be foolish.

I think it's so important for everyone to collect all of the montly statements, emails, brocures, emails and any other form of communication that shows you as the investor were being told that these securities were basically "cash equivalents". It's my understanding that some of the statements actually listed these securities under the "Cash & Cash Equvialents" category on the statements. I think that is pretty good proof of your case. I've also heard that some of the brokerage firms had research which treated these as cash equivalents or money-market type investments. Please gather all of the information that you can and share it with everybody else.

I think it's so important for everyone to collect all of the montly statements, emails, brochures, emails and any other form of communication that shows you as the investor were being told that
these securities were basically "cash equivalents". It's my understanding that some of the statements actually listed these
securities under the "Cash & Cash Equvialents" category on the statements. I think that is pretty good proof of your case. I've also heard that some of the brokerage firms had research which treated these as cash equivalents or money-market type investments. Please
gather all of the information that you can and share it with everybody else.

One more thing....I also think that most of the adviosrs at the brokerage firms were probably also under the impression that these were pretty liquid investments.....if so.....maybe some of them are willing to put pressure on the mangement teams.....I especially think that these advisors would be willing to testify on behalf of the investors in a court of law if they truly were led to believe that these securities were basically as safe as cash. I don't think that the majority of financial advisors would knowingly put their clients' money at this type of risk.....I think a lot of them are as worried and panic-stricken as the investors. I think the in-house researchers and the risk managements teams are the ones who ultimately left the investors out in the cold with frozen assets.

One more thing....I also think that most of the adviosrs at the brokerage firms were probably also under the impression that these were pretty liquid investments.....if so.....maybe some of them are willing to put pressure on the mangement teams.....I especially think that these advisors would be willing to testify on behalf of the
investors in a court of law if they truly were led to believe that these securities were basically as safe as cash. I don't think that the majority of financial advisors would knowingly put their clients'
money at this type of risk.....I think a lot of them are as worried and panic-stricken as the investors. I think the in-house researchers and the risk management teams are the ones who ultimately left the investors out in the cold with frozen assets.

I agree with ARS Survivor--I think there is enormous potential to tap into the rage and betrayal the individual brokers must now be feeling at brokerage management. They are almost as desperate for deleveraging as the investors. Our money is hostage; their livelihoods are are the line. I'd bet a lot of them would "turn state's evidence" for immunity, to tell the truth.

Lisa, I think you are absolutely right.....I personally know of several advisors who are just sick about this.....they desperately don't want their clients to lose access to their money.....and not because they are worried about own their jobs....they feel a tremendous about of responsibility to their clients. I don't have much sympathy for the advisors, brokers and fund managers who constantly talk about what they are legally or not legally obligated to do.....I hope more we'll see more companies following Aberdeen's lead next week.

D Dixon speaks of trust, which is a rare coin, once debased, not easily restored. J. P. Morgan testified in a 1912 Congressional hearing in response to a question from a solon as to whether credit was based primarily upon money or property. Morgan replied that it was neither. He proceeded to explain to the incredulous solons that the first thing was character, before money or property, that money cannot buy it.
He said, "...because a man I do not trust could not get money from me on all the bonds in Christendom."

Remember this. You call up and get this statement of how all phone calls are recorded "for your protection." So, there may be a recording of the pitch you received on these fine, AAA, highly liquid investments.

Has anybody seen this.

"Americas Watchdog's Corporate Whistle Blower Center Investigates Auction Rate Preferred Shares And Wants To Talk With Investors Who May Have Lost Their Investment, and Insiders Who Sold These Products"

http://www.emediawire.com/releases/2008/3/prweb755894.htm

I too am stuck and looking for HELP. More to follow.