Wachovia Securities HQ Raided

[Helena]

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KANSAS CITY, Missouri (Reuters) - Securities regulators from several U.S. states raided the St. Louis headquarters of Wachovia Securities, part of Wachovia Corp on Thursday as part of a broad investigation into questionable practices involving auction rate securities, Missouri officials said.

Wachovia Securities HQ raided in auction rate probe | Reuters


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[audreyh1]

I don't understand what Wachovia is accused of here. What kind of "auction rate securities" thingy is being investigated?

Audrey

 

[saluki9]

I don't understand what Wachovia is accused of here. What kind of "auction rate securities" thingy is being investigated?

Audrey

I don't know for sure, but I'm going to bet this concerns the "suitability" of ARS for individual investors.

Many of the wirehouses were selling these things as money market alternatives to individuals. Well, the auctions started getting blown out and people are now stuck with bonds they can't sell.

 

[2B]

Various brokers sold "auction rate securities" as a higher yield "equivalent" to a money market. They were very liquid until the credit crunch hit late last year. If there are no bidders, the current holders are forced to keep the security until the next auction at usually a very juicy interest rate. The problems come in when someone needs their cash or just panics at the sudden loss of liquidity.

It's all very clear in the prospectus but who reads them? The unhappy clients have called their local AG and complained about being mislead by the full service brokers that "forced" them to buy the "auction rate securities." Their claim was that they were told they were as liquid as a regular money market.

So far, no one has lost a penny that I am aware of except those that sold at distressed prices on the secondary market.

 

[al_bundy]

the ARS news was pretty funny last year

read of a story of someone with an $850 million inheritance who put it all into ARS on advice of some wall street bank and couldn't get any money out. forgot if he sold for a loss or what.

 

[ziggy29]

I don't know for sure, but I'm going to bet this concerns the "suitability" of ARS for individual investors.

Many of the wirehouses were selling these things as money market alternatives to individuals. Well, the auctions started getting blown out and people are now stuck with bonds they can't sell.

Yeah, just like the Schwab Yield Plus fund was a "high yield alternative" to money market funds even as they lost 30% of their NAV in less than a year.

 

[audreyh1]

Wow - I guess I missed the whole ARS thing last year.....

Thanks for enlightening me.

Audrey

 

[2B]

The ARS market is starting to loosen up. The people that didn't panic will soon have access to their money. They will then miss the yield they've been getting.

 

[saluki9]

The ARS market is starting to loosen up. The people that didn't panic will soon have access to their money. They will then miss the yield they've been getting.

And the people who couldn't wait and sold at a 25% discount will now sue claiming they were misled.