Did you purchase the Nuveen auction rate securities?
IF YOU PURCHASED NUVEEN AUCTION RATE SECURITIES OR BLACKROCK AUCTION RATE SECURITIES YOU MAY HAVE A CLAIM against the brokerage firm who sold you these funds. Contact the Soreide Law Group for a free consultation. Call 888-760-6552.
The market for the preferred auction rate securities, which were sold to individual investors as a higher-yielding alternative to money market funds, has been frozen as broker-dealers have ceased to conduct the auctions that determine the securities' rate of interest.
Auction rate securities are debt instruments -- in this case preferred stock-- for which interest is regularly reset through a Dutch auction. Auction rate securities were once marketed as safe, cash equivalents that were highly liquid, but the broker-dealers who sold them failed to disclose that liquidity was entirely dependent upon the success of the auction process, which was being artificially supported by the undisclosed participation of brokers bidding in auctions where they had an interest. Auctions were once held every 7 to 35 days by the brokerage firms that dealt in auction rate securities, but because of the credit crisis and its effect upon the financial markets, auctions ground to a halt in February 2008 because they were no longer viable investments and broker-dealers who had previously propped up the market by bidding in their own auctions were no longer inclined to invest in them. The result has been that holders of auction rate securities have been unable to cash out even at a loss, and investors who were led to believe that they were purchasing a cash equivalent have learned that they essentially have no liquidity at all.
Nuveen Investments LLC closed-end-fund manager claims that it is working hard to explain to investors why they may have to wait months to receive cash for their securities as a solution is hammered out with no definite date set.
Preferred auction-rate securities were issued by the closed-end municipal bond funds to help enhance performance. Proceeds from the sale of the preferred securities, which were paying relatively low interest rates when issued, were reinvested by the funds into higher-yielding municipal bonds to boost performance to fund shareowners.
The preferred shares were in-tended to be liquid investments, but large investment-banking firms, which had conducted the auctions to determine the securities' interest rate, have stopped conducting the auctions because of fears over the creditworthiness of their counterparties.
The market for the preferred shares has come to a standstill, leaving their holders in limbo.
Nuveen has no specific plan to refinance the $11 billion held in the preferred shares of its muni bond funds, but it is telling advisers that it is trying to create a preferred money market fund for the purpose.
"It's a concept in the design phase, but we feel good enough about it to" let advisers know about it, Ms. Kritzmire said. "But [the liquidity problem] ain't over till it's over." While Nuveen and investors in its funds and their securities are in a terrible bind, the company did nothing wrong, said Steve Winks, principal with SrConsultant.com of Richmond, Va. "They're impeccable," he said. "You can't find anything more reliable than Nuveen. It's not Nuveen's fault [that the auctions are failing]; it's the fault of the [securities'] underwriters." Because of the actions of these underwriters, Nuveen will no longer rely on them to create leverage in its closed-end funds, said Maria Schwieder, spokeswoman for Nuveen.