Auction Rate Securities: Were They Sold As 'Highly Liquid'?

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Auction rate securities, including the auction rate preferred securities that remain frozen and often pay low interest rates capped at low levels, were sold to retail customers (including some investors close to DealBreaker staffers) by retail brokers. A key question in the lawsuits that have been filed against Merrill Lynch and Morgan Stanley, among others, is what the retail brokers told customers about the the securities they sold.
At least at one firm, we know that asset managers were told that they were to regard the securities as "cash equivalents" because the auctions had not failed for decades. Indeed, it seems that some brokers were given a "script" that urged the so sell these as "cash equivalent" or akin to "money market funds" or "highly liquid" securities.
We know this because brokers and others in wealth management groups have told us. But we'd like to see training materials that spell this out. It will be an important indicator about whether the firms themselves were selling the auction rate securities based on misleading marketing or whether, as some firms are already whispering, it was just a few overeager rogue brokers who oversold the auction rate securities. If the retail brokers were provided with misleading sales materials, they should not be blamed.
Merrill Lynch, for instance, seems to admit the auction rate securities were sold as equivalent to money market type securities in some of its documents. "Auction rate securities have generally been issued as either bonds or preferred stock and are designed to serve as 'money market-type instruments,'" Merrill says in a document describing auction rate securities on its website.
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