The turmoil in the $330 billion auction rate securities (ARS) market has spurred a series of investigations by the
The mutual fund industry is working to come up with a solution for the closed-end fund segment of the ARS market. The
Charles Ladner, director of Boston-based
The refinancing option is not without risks, cautioned Ladner, including legal and accounting costs. On the other hand, there is the "serious reputational risk suffered by fund companies, brokers who have sold them and their sponsoring firms," he said. "It is solvable, but it is not easy."
Bryan Lantagne, director of the Massachusetts securities division, announced an ARS task force last month and has already issued 15 subpoenas and requests for information to broker/dealers nationwide in an attempt to determine whether they committed any infractions in marketing the securities.
"Investors were not told about liquidity risks and not being able to access their funds," said Karen Tyler, president of the
The products were sold, not bought, she added, and many small investors who purchased them are ill prepared to lose access to their money.
"What is happening to investors as a result? There are home purchasers who used this money as a down payment and are now losing it," she said. "There are small business owners who cannot make payroll, retirees and farmers. This is hitting mainstream America."