hr: Money

Photo Credit: dave_7

Investors of auction-rate securities were unable to get their money ever since the market sometime in February seized up.

This is exactly what happened to real estate investor Franklin Biddar, 65, from Toms River, New Jersey, who was unable to get hold of the cash that was invested for him. Even when he tried to sell securities that was worth $100,000 to Fieldstone Capital Group, Charlote, he could not unlock his money on the grounds, said North Carolina-based Bank of America, that the transaction was not made in his behalf. In other words, he was not privy to the instrument and his money got tied up in an investment that would not redound to his benefit.

Although Biddar said that he was willing to accept payment that’s 11 percent less than what he originally invested in the securities. He claimed that it was Bank of America who got him into the said securities in the first place, and that now they won’t allow him to get his money.

Several financial institutions such as the Bank of America, UBS AG, and Wachovia Corp. plus at least some 48 other firms sold $330 billion worth of these securities have thwarted all attempts to create a secondary market that can grant investors access to their money. However, the dealers say that they are sparing their customers from unnecessary securities losses marketed as similar to cash-like instruments.

Since mid-March, there have been at least 24 filings for proposed class action lawsuits versus brokerages regarding claims that investors were misled to believe that the securities were nearly as good as cash.

Some of the investors that were trapped in this deal are prominent entities: Google Inc. in Mountain View, California. The investors have been trapped in auction-rate bonds for longer than three months after the dealers suddenly stopped running the bidding and abandoned the market with their mounting losses on debt connected to subprime mortgages. Earlier however, the same dealers were buying securities that went unsold, and routinely told investors that at a moment’s notice they could get their money back.

“For someone needing their cash, the only choice is to go to the secondary market and sell them with a haircut. I don’t think brokerage firms have any interest in selling these,” according to lawyer Steven Caruso, at Maddox Hargett & Caruso, New York, who represents investors versus dealers.