Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, April 17, 2008

NASAA Coordinates Auction Rate Securities Investigations

NASAA announced that several of its members have been conducting investigations involving auction-rate securities (ARS) and are coordinating their efforts to help investors who cannot access funds that their brokers placed in these complex investment products.  Karen Tyler, NASAA President and North Dakota Securities Commissioner, said that state securities regulators have been responding to auction-rate securities-related complaints and have had investigations underway since late February, 2008. The state investigations center on sales practices and supervisory issues related to auction-rate securities. The investigations are being conducted by individual jurisdictions through an ARS Task Force chaired by Bryan Lantagne, Director of the Massachusetts Securities Division. Task force members include state securities regulators from Florida, Georgia, Illinois, Massachusetts, Missouri, New Hampshire, New Jersey, Texas and Washington.

Auction rate securities are often promoted as being similar to cash deposits or money market accounts. However, because of tight credit markets stemming from the sub-prime mortgage crisis, many auctions where auction rate securities are traded have failed. As a result, many investors are finding that they are unable to access their money.  Complaints received by state securities regulators have the same common theme. “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,” Lantagne said.

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