.... Auction-Rate Bond Marketers Are Buying The Bonds Back Rather Than Pay Potentially Much Greater Penalties in Proceedings Pursued by State Regulators.
One-time sellers of Auction-Rate Bonds are buying them back rather than face paying penalties. Regulators of the sellers have launched investigations across the nation, and these local governmental investigations are resulting in settlements by which the sellers reduce their potential penalties exposure in return for protecting the people and local goverments to which they rather aggressively sold these securities. Allegedly, the once-upon-a-time sellers kept selling Auction-Rate Bonds even after the market dried up for them -- in a niche market. That means that, allegedly, the sellers knew the conditions of that unique market and most buyers did not. Interview With Massachusetts Secretary of State William F. Galvin, "Still Sorting Out The Auction-Rate Mess/Galvin's Office Addresses Conflicts" (Boston Globe Online, Sunday, August 31, 2008).
To offer a helpful definition here, adding to past posts about Auction-Rate Bonds and other types of Bonds which drew Bond Insurance Policies, Auction-Rate Bonds "are investment notes or securities or bonds -- financial commitments" which were treated like cash because they could be bought and sold with ease in their heyday. This "high degree of liquidity" came from "a process of periodic rebidding." Id. The rates of Auction-Rate Bonds and Securities were regularly reset at auction, in basic and simple terms.
Conflicts of interest are at the heart of investigations into the sale and purchase of other securities, such as Mortgages, and the sale and purchase of commodities, such as oil, wheat and cotton. "There's not adequate supervision," says Secretary Galvin. "We're all committed to a free market economy. But a free market only works when it's truly free and it's not rigged." Id.
Settlements by Auction-Rate Bond sellers by which they buy back the Bonds they once sold with relish, may have the effect of preventing Claims on Bond Insurance Policies before the Claims can ripen. That would be a positive effect for Bond Insurance Companies for certain.
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