Although it's still a far bigger scam than Bernie Madoff's $50 billion Ponzi scheme, it has gotten a relatively tiny amount of attention. I don't know why but I suspect it's because the victims of the $330 billion Auction Rate Securities (ARS) swindle -- in which money invested in supposedly cash-like investments in government bonds whose rates reset in weekly auctions -- are not bold-faced names like Kevin Bacon and Steven Spielberg.
Nevertheless, when the ARS scandal broke in February 2008, those investors found that their supposedly safe savings were frozen when the auctions to reset those rates stopped happening. My original post now has 7,343 comments from people who have been trying to get their money back. The good news is that some $200 billion worth of those securities have been unfrozen thanks to Massachusetts and New York officials, Bill Galvin and Andrew Cuomo, respectively, who fought on investors' behalf.
Nevertheless, there remain about $135 billion worth of these ARS that remain frozen. There are many individuals whose funds remain frozen with limited prospects of recovery. And there are companies and non-profits whose funds are still frozen as well. These include Vicor (NASDAQ: VICR) with $38 million of its funds tied up until 2010 at the earliest; Tufts Health Care has $30 million, which has half its cash tied up and no prospects for recovering it; and Five Star Quality Care (AMEX: FVE), with $75 million tied up in ARS and just just $39 million in cash.
Regulators and issuers must thaw out the $135 billion in frozen ARSs to relieve the victims of the endless stress of not getting their cash. Unfortunately, once this matter is settled, those victims are highly unlikely ever to regain their trust in the financial services industry.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
12-31-2008 @ 5:06PM
Kathy said...
As one of the participants in those 7,343 comments on your original article, I want to thank Peter Cohan for his ongoing attention to the great ARS fraud.
It is astonishing that a $330 billion fraud has been allowed to float below the radar. Compare this with the furor over $20 billion to save a nation's auto industry, or indeed, the $50 billion Madoff scandal.
Where was the federal government when Americans found $330 billion of their cash hijacked? Nowhere to be seen. Ten months later, the SEC continues to do nothing.
Thanks to William Galvin, Andrew Cuomo and other state securities regulators, some of us have our money back. Others wait for Oppenheimer, TD Ameritrade and E-trade to stop stonewalling and give them back their cash.
Let's also note that the SEC, so ineffective, wants to take power away from the very state regulators who acted on behalf of ARS victims. As regulation is rethought in 2009, consumers should make sure that state regulators are not silenced.
2-17-2009 @ 8:23AM
Wistling in the Dark said...
TD Ameritrade, eTrade, and Oppenheimer are all guilty of scamming their customers. In my case, TDA used proprietary and confidential information regarding me and my wife's personal accounts to actively target us as their victims. TDA sold these to us a "same as a money market" and "liquid within 7 days at the most". Neither of these statements were true!
And shame on the SEC and FINRA! They have shown their true colors and culpability in this entire fiasco by siding with these scoundrels by not uttering a word or doing a thing even though these so-called financial companies flaunt the laws written to protect the consumers.
One is a fool to do business with TD Ameritrade, Oppenheimer, or eTrade! You would be better off giving your money to Bernie Madoff.
3-17-2009 @ 1:04AM
D Holland said...
What happened to the original bloggingstocks?
Are the same "workers" still staying connected on this site?
Any news of Nicholas Applegate redeeming or any news at all?
I am reassured to see Kathy as number 1 commentor, where is Lily?
Thanks
3-20-2009 @ 7:58AM
Stell said...
The information you have provided is new to me. Thank's for it.
Lisa11
auctions