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Auction-Rate Securities Investors Fight to Get Their Money Back

Many investors are feeling handcuffed to their auction-rate securities (ARS) as the struggle to get money back from the Wall Street banks continues. Bank of America, UBS AG and Wachovia Corp, (three of the firms that sold $330 billion worth of these securities) are now preventing efforts to create a second market. This market would provide investors access to their cash.

One investor, who has not had access to his invested money since February when the auction rate market began to freeze, is upset the bank is unwilling to release his bonds. Bank of America refuses to let him sell $100,000 of securities to Fieldstone Capital Group, claiming the deal is not in his interest. Brokers rejecting these transactions claim they are saving their customers from further unnecessary losses on the securities that they marked as cash-like instruments to begin with.

According to Vincent Dicarlo, formerly a lawyer at the SEC’s enforcement division, “if an investor finds a buyer, he should be able to move his securities to another dealer or take possession to complete the transaction.”

UBS has refused to find buyers for customer’s auction-rate securities because, in their opinion, the secondary market is “inefficient”. What could the secondary market be inefficient to if the primary market no longer exists?

“For someone needing their cash, the only choice is to go to the secondary market and sell them with a haircut,” said Steven Caruso, an attorney at Maddox Hargett & Caruso, who is representing investors in lawsuits against dealers.

According to Darrell Preston’s June 6, article, since March at least 24 proposed class action suits have been filed over claims investors were told the securities were almost as liquid as cash. These investors have been caught for months with auction rate debt since the buyers that ran the bidding could no longer support the market due to losses linked to subprime mortgages. Before investors believed they could get their money back right away because dealers always bought the unsold securities.

Not only has Wall Street misrepresented these products to their customers, it appears some firms are now preventing these same customers from getting the relief and access to their money that many desperately need.

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