Yet Another Investment Scandal: Duping Investors

I know it must be hard to believe, but there's more evidence that when financial services companies have conflicts of interest, they tend to pay more attention to their own than to those of clients. The New York Times reported yesterday that Massachusetts has turned up evidence that USB was deliberately trying to foist risky securities that it and its employees owned onto individuals:

Auction-rate securities are preferred shares or debt instruments with rates that reset regularly, usually every week, in auctions overseen by the brokerage firms that originally sold them. They have long-term maturities or, in the case of the preferred shares, no maturity dates whatsoever. The securities are issued by municipalities, student-loan companies, closed-end funds and tax-exempt institutions like hospitals and museums.

In mid-February, the $300 billion market for these instruments collapsed, trapping investors who had been told that they were safe and easy to cash in — leaving both wealthy investors and those of modest means unable to finance their small businesses, buy homes, pay college tuition and otherwise use their money as they had planned.

Although USB is denying it, Mass. secretary of the commonwealth Bill Galvin's office apparently uncovered some blatant emails. Read the story (at the link) to see some of the panic that knowingly ran through the company as it wanted to dump inventory - and that some emails by brokers themselves suggest that they felt they were being kept in the dark about real risk as well. If it really was cash equivalent, as they allegedly claimed, then why was it so hard for them to get cash? Could they be ... lying? Maybe: were their fingers typing?