Friday, February 22, 2008
Auction Market Turmoil Draws Watchdogs' Scrutiny
--Regulators and lawyers are closely watching the collapsing auction-rate-securities market, which has a history of regulatory trouble, to assess damage and consider actions on behalf of investors or issuers who claim they didn't understand what could go wrong. --A pile of failed auctions is mounting in this market, in which issuers like municipalities, museums, schools, closed-end mutual funds and others raise long-term debt with short-term interest rates. Auctions reset the interest payments on the bonds every seven to 35 days, but they're failing to draw investor interest. --As the problem balloons, the implications for investors, issuers and auction dealers are coming into focus, and there may be a bit of deja vu. Eighteen months ago, regulators rapped the knuckles of Wall Street firms for intervening in the market without disclosing to investors that they could do so. --The Securities and Exchange Commission settled with 15 broker-dealers of auction rate securities and three auction agents after investigating their involvement in the auction market from 2003 to 2004. The allegation at the time was that they prevented the auctions from resetting at fair market interest rates by bidding in these auctions themselves without disclosing their involvement.