Maui County sues Merrill Lynch over access to $32 million in securities

[The Sushi Bandit]

Source: Associated Press

HONOLULU — Maui County has sued Merrill Lynch, Pierce, Fenner & Smith Inc. over access to $32 million invested in student loan auction rate securities.

The county said Wednesday that Merrill Lynch sold it the securities with the understanding they were safe, short-term, liquid investments.

Maui Mayor Charmaine Tavares says the county was told the investments could be easily accessed, just like cash. She says assurances by Merrill Lynch at the time of the investment turned out to be false.

A call seeking comment from a Merrill Lynch spokesman wasn't immediately returned.

County officials say about $44 million in the securities were purchased through Merrill Lynch. They say today, the county owns $32 million of the securities that are not liquid.


Read more: http://www.honoluluadvertiser.com/article/20100217/BREAKING01/100217073/Maui+County+sues+Merrill+Lynch+over+access+to++32+million+in+securities

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[virgogal]

1. Odd map-------where are the rest of the islands?

[Lucky Luciano]

2. That map is Maui county. The other islands are parts of other counties. nt

[virgogal]

3. Mahalo----I didn't realize that and I've been to Maui and Molokai.

Better hit the old map books again :-)

[Iowa]

4. Wow!

They invested $44 million in securities they didn't understand, all the while assuming they were "safe, short-term, and liquid" - because some Merrill Lynch turd told them so. Anyone with even a rudimentary understanding of investing knows that you can't trust brokers. Hell, just the name of these securities alone would be enough to throw up a massive red flag. If this isn't gross incompetence and malfeasance, I don't know what is. The stupidity is staggering.

[metapunditedgy]

5. Whatever. I've been in a situation like this myself.

The broker advertised the issue as "like a money-market fund." The company that ran the "fund" boasted of their conservative approach on page one of their prospectus. "This is where you keep the money you use to put food on your family table," they wrote. Turns out that the internals of the fund were a bunch of crap that no one in their right mind would by.

Just because brokers and dealers are filthy liars (and probably can't help it) doesn't excuse them.

[Iowa]

6. Nonsense...

" I've been in a situation like this myself. The broker advertised..."

A government entity responsible for investing $44 million+ of the public's money is not held to the same standard as some rookie investing a few bucks in a mutual fund. If they were held to the same standard, this country would be in even bigger trouble than it is. I would think this goes without saying, but then you came along and proved me wrong.

"...brokers and dealers are filthy liars (and probably can't help it)..."

You think they "can't help it"? Of course they can help it! It's a sleazy business by design. But that fact has been beaten to death over the past 15 - 20 years... it is so well known that you'd need to literally go out of your way to avoid reading any unbiased information about investing not to know this. It's investing 101 - first day of class - first page of the textbook.

"The broker advertised the issue as 'like a money-market fund'... 'This is where you keep the money you use to put food on your family table,' they wrote. Turns out that the internals of the fund were a bunch of crap that no one in their right mind would by."

That makes for a good story and all, and anything is possible I suppose, but this just doesn't sound plausible. While brokers will lie through their teeth, such explicit and evocative safety claims about such high-risk assets aren't likely to find their way into a prospectus. A prospectus is where you'll typically find weasel words, fine print, and disclaimers. Financial services corps are masters at covering their asses and leaving investors holding the bag. What company and what fund?

[metapunditedgy]

8. The Reserve Yield Plus Fund. Check out the prospectus, if you can find a copy.

Heavily marketed by Ameritrade. Turned out to have a lot of Lehman paper and other stuff that did not live up to the promise right at the front of the prospectus.

Sure, there are weasel words in small print in the prospectus, but I think the stuff that the fund owner writes in large print right at the front has legal standing too. And actually, there are laws (and/or SEC regs) relating to how a fund can be represented. For example, there are strict regulations on what can be called a "money market fund."

Anyway, the Primary Fund started the MMF crises back when it broke the buck. The SEC is now suing The Reserve, along with several other parties. State regulators are involved with both The Reserve and TD Ameritrade.

Bottom line, sure a large investor should do more diligence than a small one, but when the broker and/or fund manager lie or try to cover up the truth, then they are to blame. Those guys are far worse than crack dealers... wonder when we will see mandatory sentencing guidelines for financial scammers?

[TexasObserver]

7. Not surprised.

[The Sushi Bandit]

9. The county is having a multi-million dollar shortfall in tax collections

because of the depression (yes, on Maui it is a depression). These funds are needed to keep county services going.