| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Investigators circle as safe investments snap shut |
By Joanna Chung FT.Com
April 29 2008 20:21
When the New York state attorney-general starts poking around for possible wrongdoing in the markets, it is usually bad news for Wall Street.
So the subpoenas sent this month by Andrew Cuomo’s office to 18 banks and brokerages, asking for data on their activities in a once obscure and well-functioning part of the debt markets, are not being taken lightly. They were handed down under the powerful Martin Act, a state law which allows for bringing criminal charges.
“Any time you are the target of the New York attorney general’s office, you have to be concerned because they have been successful in the past and they tend to exact tougher and more onerous settlements than other regulators,” says John Coffee, law professor at Columbia University.
But Mr Cuomo’s office is one of at least a dozen different authorities, at the state and national level, investigating aspects of the $330bn auction-rate securities market. The market, where local government, schools, hospitals and other Main Street borrowers raise money, has long been viewed as safe.
Investors – including high net-worth individuals and cash-rich companies – have often treated auction-rate securities as being similar to cash deposits or money market accounts. While the securities are long-term debt, interest rates are periodically set at auctions. But the sector started to seize up in February as liquidity began to dry up, and has become one of the casualties of the credit crunch. The widening regulatory attention on the auction-rate debt market was sparked by a dribble of complaints that soon turned into a flood, regulators say. Nearly all the main investment banks are the subject of the various probes.
The Securities and Exchange Commission has been working closely with the Financial Industry Regulatory Authority, a private regulator of broker-dealers in the US, to look into the sector, collecting information from dozens of firms. Regulators say probes are still continuing but some appear to be narrowing their search.
EDITOR’S CHOICE
One focus is on disclosures made to issuers. But the area that may be more fertile is how the securities were sold to investors and whether they were informed of the risk that the market could become illiquid, say some regulators.
One enforcement official says: “As the market started to show signs of stress . . . did [firms] start changing who they sold to? Did they start taking themselves and preferred sellers out of the market? Did they start overplaying or underplaying the cash-like aspect of the securities? What did they know and when did they know it?”
The person adds that firms or broker dealers, who intentionally placed customers into products they knew “would not act as they had before” given the market dislocation, would be in breach of rules.
Professor Coffee says: “It was anomalous that the market suddenly dried up. The question is, was there any collusion that led to people suddenly moving out of the market? What would be most suspicious is if you see any kind of discussions between banks.”
Some investors were unable to exit the market at short notice when auctions started to fail in mid-February, when the creditworthiness of bond insurers came into sharp focus.
Wall Street dealers stepped back from supporting a market in which issuers roll over debt every seven, 28 or 35 days, and stopped taking on the unsold securities in auctions they managed. The result has been drastically increased costs of borrowing in the auction-rate market and the inability of investors to access their money.
Bryan Lantagne, director of the Massachusetts Securities Division, says: “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.
“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,” he says.
Interest rates at auctions have fallen from the peaks set early last month as many borrowers leave the market or buy their debt at auction – a move which prevents the sale from failing and lowers rates.
The auction rate for bonds sold every day averaged 4.34 per cent last week, down from 5.14 per cent in the first week of April and a peak of 6.73 per cent in early March, according to an index compiled by the Securities Industry and Financial Markets Association.
But for many participants, the damage has already been done. A number of private lawsuits have been filed in recent weeks and political pressure in Washington is growing.
Given the number and nature of the complaints, nine state securities regulators – Florida, Georgia, Illinois, Massachusetts, Missouri, New Hampshire, New Jersey, Texas and Washington – decided to coordinate their probes earlier this month.
Mr Cuomo’s investigation, which is likely to cause the most consternation for banks, is also the broadest, with some requests for information going back five years, attorneys say.
“I suspect that firms are struggling to respond to all these demands,” says Richard Morvillo, chair of Mayer Brown’s securities enforcement group. He compared the sweep with the market-timing investigation launched by Eliot Spitzer, former NY attorney-general. “There are tremendous costs and time associated with complying with these things,” he noted.
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Income Security Recommendation January 2013 Issue.
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