Kiss My ARSs

Monday, August 03, 2009 , , , , , 0 Comments

I'm starting to think maybe I shouldn't be in accounting after all. The lawsuits are flying and if I could get away from the mathleticism, maybe I'd have been watching this awesome ARS fire fight.

Like this winner from our friends at $C U Next Tuesday (I got away with it once, can I do it again?):

Citigroup Agrees in Principle to Auction Rate Securities Settlement
Firm Will Provide Liquidity and Remediate Losses

Washington, D.C., Aug. 7, 2008 — The Securities and Exchange Commission's Division of Enforcement today announced a preliminary settlement in principle with Citigroup Global Markets, Inc. (Citi) including proposed charges and a plan that would give individual investors, small businesses, and charities all $7.5 billion of their money back from auction rate securities (ARS) they purchased from the firm. The agreement also would require Citi to use its best efforts to liquidate by the end of 2009 all of the approximately $12 billion worth of ARS the firm sold to retirement plans and other institutional investors.
Well good thing Citigroup got those taxpayer injections to help it digest this particular SEC "enforcement."

Citigroup was joined by Bank of America in another ARS settlement, this time paying out millions to states for questionable "ARS marketing tactics" (I'm being nice):

Citigroup Global Markets Inc. will pay the state $924,781, and Banc of America Securities LLC & Bank of America Investment Services Inc. will pay $351,693. Eleven other states also are receiving payments.

Although it didn’t get a whole lot of attention during the financial collapse last year, the auction-rate securities market was worth hundreds of billions of dollars when it failed. The securities are long-term bonds that are packaged and sold with auctioned interest rates.

People who invested that way expected the returns to look like a high-yielding money market account, with rates usually in the 5.5 percent range. The problem became that when people stopped buying the securities the market began to fail. The banks, who would usually step in as the bidder of last resort, had bigger problems in February of 2008, namely the complete financial collapse of the United States. So, the markets failed leaving investors, many of them municipalities, holding the bag.

Apparently, at least according to NYT, we need to talk about it again.

IT’S time again to revisit the auction-rate securities mess, a nightmare that began 18 months ago but that still hasn’t ended for some unfortunate investors.

Recall that once upon a time, Wall Street promoted auction-rate securities as just as good as cash, a liquid investment you could unwind in a flash. But when the $330 billion auction-rate market froze in February 2008, investors were suddenly unable to sell their holdings. Money they had set aside in a “safe” place for college bills, retirement plans and down payments on homes was inaccessible. In hardship cases when they could sell, they took significant losses.

The debacle hit individual investors especially hard. When state regulators investigated the circumstances surrounding auction-rate failures, they found that some of the firms selling the securities had turned their aggressive sales pitches on small investors even when astute institutional buyers had already seen trouble and stopped buying.

Regulators have since forced many brokerage firms that underwrote or sold the securities to buy back their clients’ holdings. Eight large and small firms have already settled, or agreed to settle, auction-rate cases with the Securities and Exchange Commission.

LandAmerica's creditors might have something to say about this. Just in case anyone is looking to make a huge deal out of anything.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.