Editor’s Note: The following report is excerpted from Jerome Corsi’s Red Alert, the premium online newsletter published by the current No. 1 best-selling author, WND staff writer and columnist. Subscriptions are $99 a year or $9.95 per month for credit card users.
A federal grand jury in Brooklyn indicted two former Credit Suisse Group brokers last week in the unfolding crisis with auction-rate securities issued by major financial institutions, according to the Wall Street Journal.
The criminal indictments are expected to be the first of many, as federal authorities and the Securities and Exchange Commission try to establish responsibility in what is yet another Wall Street credit mess.
As Red Alert previously reported, the crisis with auction-rate securities has left thousands of individual investors without retirement savings and scores of institutional buyers and charities with losses yet to be measured.
The Wall Street Journal estimated investment firms have sold $330 billion in auction-rate securities to more than 100,000 individual investors and institutions in the last 20 years.
Auction-rate securities involve debt issued by government entities such as municipalities or long-term borrowers. Some borrowers are student loan organizations that issue debt securities to investors, with taxing power of the municipality while others use the ability to collect student loans as the ultimate collateral.
The securities are called “auction-rate” because short-term interest rates on investments are set at frequent intervals in auctions. The securities can change hands, and the current interest rate paid by the issuers is decided by the short-term rate the auction sets, as determined by interest rate environment current at the time of the auction.
Stock brokers were paid high commissions to sell auction-rate securities as higher yielding securities. They were touted as being as safe as money market funds.
Now, in the current credit crisis, investors holding auction-rate securities are finding that they are illiquid in that no buyers stand ready to purchase them, even at dramatically reduced values.
For more on the 12-page indictment and how brokers allegedly misled corporate clients around the world, read Jerome Corsi’s Red Alert, the premium, online intelligence news source by the WND staff writer, columnist and author of the New York Times No. 1 best-seller, “The Obama Nation.”
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