Meissner Firm Criticizes FINRA Release

Since our last posting the Meissner firm has been in contact with numerous victims of the Auction Rate Securities fiasco involving at last count 330 billion worth of securities of which 65 Billion involves closed end funds. The problem is wide spread involving numerous brokerage firms and issuers. Issuers include Eaton Vance Corp, BlackRock, Legg Mason Inc. , and Nuveen Investments among others. Although there has been much chatter about resolving the problem and a few issuers have stated they have refinanced their securities this appears to be a small minority of issuers. At the same time published reports state UBS has announced that they are re-pricing or “marking down” these securities as they appear on client statements from par value down to a discounted range of 3% to greater than a 20% discount. We believe such mark downs are a first step and that there will be more such mark downs from UBS and other firms as they start informing clients of the damage to their assets.

The Meissner firm already has two arbitration pending relating to similar mark downs in a situation that took place last summer involving Brookstreet Securities where on one day the clearing firm National Financial Services revalued the securities at issue causing huge margin calls for hundreds of investors invested in such instruments at such brokerage firm. Such unilateral revaluation caused the accounts, most of which were conservative accounts seeking income, which before that day had large positive balances suddenly had large negative balances. Subsequently the clearing firm has sent demand notices and has sought interest on such debt. As a result, clients not only had their life savings disappear literally over night but had collection notices to deal with and still do along with daily interest being charged. In the current Auction Rate Securities situation there is a similarity in that there is no current market for the securities in question. Just as National Financial Services discounted the Brookstreet securities, the brokerage houses whose clients are involved in Auction Rate Securities will need to at some point account for the lack of liquidity and indicate such on the account statements. If one were to now add a loan on top of this situation, as most firms are encouraging clients to do, then on any given day at the discretion of the brokerage firm such securities may be revalued triggering an immediate margin call and requirements to repay the debt along with interest.

On March 31, 2008 the Financial Industry Regulatory Authority (FINRA), the self regulatory organization that supposedly regulates the brokerage industry, issued “Guidance for Investors Caught in Auction Failures” (PDF). In our opinion such “Guidance” is as about as useless as a CMO from Countrywide (worthless). The options provided are

  • Continuing to hold (took a wall street MBA to think of this one).
  • Selling on the Secondary Market or selling to your brokerage firm – we have yet to hear of a brokerage firm willing to do this and as for the secondary market we have yet to see any such market other than some various press reports that there may be one but that significant discounts are being taken (in our view damages).
  • Borrowing on Margin – After years of FINRA warning investors against margin we are shocked that FINRA would in effect support such a suggestion and then focus on tax or yield or other issues of concern rather than the serious concern of leveraging against an already illiquid security when the investor originally sought liquid conservative cash, the very opposite and opening them to the possibility of a Brookstreet situation.
  • Selling other investments for current cash needs – (another Wall Street MBA must of thought of this novel idea). No more need be said.
  • Filing a “complaint” with FINRA – what they don’t tell the public is that such regulatory complaints (which this law firm has been involved in many such complaints always in accordance with our arbitration filings) do not seek reimbursement to the investor. Rather FINRA possibly down the road (a long road) may take regulatory action (fine payable to FINRA, etc) against a firm or broker if they act on the complaint at all. They eventually tell investors who file such complaints if they happen to inquire that in order for the investor to be compensated the investor must file an arbitration on their own, separate and apart from such regulatory “complaint”.
  • Thus what is glaringly missing from the “options” is filing an arbitration claim against their brokerage firm (all of whom are members of the same FINRA) by retaining a qualified securities arbitration attorney. Further, what FINRA ignores is that the victims in this situation all were misled as to what they were investing in and/or their brokerages failed to inform them of the liquidity risks of these instruments. There is not a mention as to what investors should do if they feel they were misled as most of those caught up in this situation were. It is unfortunate that it appears FINRA; the sole self regulatory agency of the securities industry is in effect diverting investor attention away from having the brokerage industry take responsibility for their clear negligence in managing their clients’ funds. In so doing FINRA fails to inform the investor that they can file a securities arbitration claim seeking compensation and/or rescission as thousands of other investors have done over the years when they have been misled by their brokerage firms and which in-person hearings the Meissner firm has the unique background of never having lost* such hearings, returning millions of dollars to investors across the nation and globe in awards and settlements. We can understand, due to the broad nature of the problem among its membership, why FINRA does not wish to even suggest such arbitration claims to the public, but the Meissner firm is determined to let the public know that there is another “Option” and not to let the brokerage firms get away with misleading the public investor, as it appears is being encouraged.

    Currently the Meissner firm is accepting retention in the filing and pursuit of arbitrations on behalf its clients. In addition, for those who need ongoing advice about the situation, margin issues, etc we are accepting retention for consultations and advice only. We ask potential clients to complete a questionnaire tailored to this situation which assists us in evaluating your particular situation. Please contact us for free phone consultation if you are interested in retaining our firm to assist you.