Bank of America Did Not Warn Small Investors About Auction-Rate Securities Crisis

Documents reveal that Bank of America told the state of California as early as late last year that there were problems brewing with the auction-rate securities market. The country’s largest retail banking firm, however, failed to warn smaller investors about potential trouble and continued selling the investments without providing any warning to these clients.

In its presentation to the California’s treasurer last year, Bank of America warned the state of a “significant dislocation” in the auction-rate securities market, as well as a drop in demand for the bonds. It also informed the State that corporate clients had engaged in “significant year-end selling” of the investments. The Boston Globe obtained a copy of Bank of America’s presentation to California, as well as the presentation of other investment banks.

Bank of America is the eighth-biggest issuer of auction-rate securities. It is one of the few brokerage firms that has yet to announce a settlement with state regulators related to the collapse.

The retail banking firm told The Boston Globe that its presentation to the state of California did not talk about the liquidity issues that would end up being at the center of the auction-rate securities collapse earlier this year. Upon closer scrutiny, however, Bank of America’s presentation appears to indicate the possibility of the market shutting down.

Prior to the market collapse, California had some $1.4 billion in outstanding auction-rate securities. Fortunately, the state’s treasurer paid attention to the warnings it received from Bank of America and other investment advisers. By May 23, it had refinanced all except for $100 million of its auction-rate bonds.

Related Web Resources:

Bank of America subpoenaed on auction-rate securities, derivatives, BizJournals.com, August 8, 2008
Investors sue Bank of America over auction rate securities, Bizjournals.com, July 18, 2008
Small investors did not receive the same market intelligence, and thousands of people have been unable to retrieve their funds since the market collapsed. If you are an investor that lost money because you were not warned about the risks associated with investing in the auction-rate securities market, our stockbroker fraud law firm would like to talk to you. Contact Shepherd Smith Edwards & Kantas LTD LLP for your free consultation.