A team of state regulators raided Wachovia Securities’ St. Louis headquarters today as part of a broad investigation into sales of auction rate securities to investors. The investigation is apparently focusing on Wachovia Securities’ sales practices in selling auction rate securities as well as Wachovia Securities’ internal activities regarding the auction rate securities market. The raid was apparently necessitated by Wachovia Securities’ refusal to comply with requests for information issued by the state of Missouri.
In addition, Missouri has reportedly served subpoenas on more than twelve Wachovia Securities’ executives and employees as part of the investigation.
Auction rate securities, which were sold to many investors as “cash equivalents” are long term bonds which are issued by cities, non profit organizations, student loan agencies, and closed end mutual funds, whose interest rates reset by auction every 7 to 35 days. During recent months, hundreds of auctions have failed when Wall Street investment firms, including Wachovia, withdrew their support from the auction rate markets. As a result, investors’ assets became illiquid and are now tied up in securities that they cannot sell. This result was completely contrary to the sales pitch for auction rate securities which promised that they were liquid, super-safe investments with interest rates slightly superior to conventional money markets funds.
A task force of members of the North American Securities Administrators Association is conducting investigations of various securities brokerage firms over their sales of auction rate securities. State investigations are being handled by each state individually but are being coordinated through the task force. States involved in the task force include Florida, Georgia, Illinois, Missouri, New Hampshire, Massachusetts, New Jersey, Texas, and Washington. Firms that are reportedly the subjects of such investigations include UBS, Merrill Lynch, Citigroup/Smith Barney, Goldman Sachs, and Morgan Stanley, among others.
According to Karen Tyler, the President of the North American Securities Administrators Association, “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. If the product was represented to be a cash equivalent going in, it must be treated as a cash equivalent coming out.”
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors in auction-rate securities cases. For further information, please contact us.