State Securities Regulators Coordinate Ongoing Auction-Rate Securities Investigations

WASHINGTON, D.C. April 17, 2008—The North American Securities Administrators Association (NASAA) today said that several of its members have been conducting investigations involving auction-rate securities (ARS) and are coordinating their efforts to help investors who cannot access funds that their brokers placed in these complex investment products.

“Given the number and nature of the complaints and the damaging impact this latest manifestation of the credit crisis is having on Main Street investors, state securities regulators have structured a coordinated approach to moving forward with our investigations. If violations are uncovered, then state securities regulators will seek appropriate remedies, including a much stronger commitment from Wall Street to provide their retail clients with an acceptable solution,” said Karen Tyler, NASAA President and North Dakota Securities Commissioner.

Tyler said state securities regulators have been responding to auction-rate securities-related complaints and have had investigations underway since late February, 2008. The investigations are being conducted by individual jurisdictions through an ARS Task Force chaired by Bryan Lantagne, Director of the Massachusetts Securities Division. Tyler said that NASAA, as a membership organization, does not have any investigative or enforcement authority. Task force members include state securities regulators from Florida, Georgia, Illinois, Massachusetts, Missouri, New Hampshire, New Jersey, Texas and Washington.

The state investigations center on sales practices and supervisory issues related to auction-rate securities. “Our focus is to determine what conduct took place at the point of sale – what was potentially misrepresented and omitted – and our goal is securing for investors access to their cash as requested,” Tyler said. “If the product was represented to be a cash equivalent going in, it must be treated as a cash equivalent coming out.”

Auction rate securities are often promoted as being similar to cash deposits or money market accounts. However, because of tight credit markets stemming from the sub-prime mortgage crisis, many auctions where auction rate securities are traded have failed. As a result, many investors are finding that they are unable to access their money.

Complaints received by state securities regulators have the same common theme. “Investors are telling state securities regulators that they did not know that their money was being held in auction-rate securities, and were not advised about the liquidity risks,” Lantagne said. “States have heard complaints from a wide range of investors – young families saving for a first home, small business owners, retirees, and people with parents in nursing homes – whose lives have been detrimentally impacted because the money they thought was liquid is now tied up in this frozen market. Based on these investor complaints, this appears to be a pervasive problem.”

Tyler urged investors to contact their state securities regulators if they have had difficulty with their auction-rate securities or are unable to access their investment funds as promised. Contact information is available on the NASAA website.

For more information:
Bob Webster, Director of Communications

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