In the latest sign of a regulatory crackdown on the auction-rate-securities market in the U.S., a team of 10 state securities regulators showed up at the St. Louis headquarters of Wachovia Securities on Thursday to demand documents and conduct interviews about the company's sales and marketing practices, according to Missouri authorities.

The action comes after more than 70 formal complaints were filed with the Missouri Securities Division over the past four months - all from investors who feel they were misled in their purchase of auction-rate securities. The USD 330 bn market for auction-rate securities allowed issuers such as municipalities, student-loan companies, closed-end mutual funds and financial institutions to borrow money for the long term, but at short-term, or lower, interest rates. The rates were set weekly or monthly in auctions conducted by Wall Street firms. When the brokerages stopped supporting the auctions as buyers of last resort in February, the market seized up and investors were left unable to easily sell their securities and access their money.

Wachovia was a midsize player in the auction-rate-securities business, and is the parent to the St. Louis-based brokerage firm formerly known as A.G. Edwards & Sons, Inc. Wachovia Securities is the subject of arbitration claims and a lawsuit filed in New York in March. Massachusetts' securities regulator filed a civil fraud lawsuit last month against UBS AG, which was one of the largest players in the auction-rate-securities market. The regulator alleges UBS misled investors to buy auction-rate securities even though it was aware the market was disintegrating. Massachusetts regulators also accused UBS of books and records violations for stalling in making its business records available to regulators.

 

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