Saturday, August 08, 2009

Survey: Sit Back and Watch (SBW) Award

I wish to give the SBW Award to the organisation or person in Singapore who sits back and watch, when it is their duty to step forward and uphold justice. Who do you nominate? Survey.

Off-loading the risky credit default swaps

I share this hypothesis. Does it look close to reality?

During the years prior to 2005, investment banks were making huge profits by issuing credit default swaps to guarantee the bonds issued by borrowers. They sold these swaps to other investors and made a good margin.

In the later years, as the economic situation becomes difficult and defaults on mortgages rises, the investment banks were saddled with swaps that they were not able to off-load to ther investors.

Some clever but dishonest banker conceived the idea of designing a structured product to hide these swaps and sell them to retail investors. They looked for countries that are wishes to be a financial hub and have a history of being pro-business and weak in consumer protection. Singapore and Hong Kong were selected.

This was the beginning of the crisis of the credit-linked notes.

Tan Kin Lian

Friday, August 07, 2009

Lehman Brothers Victim alliance in Hong Kong

The Lehman Brothers Victim alliance in Hong Kong web site has a news section that shows related Chinese and English news

Happy National Day

To the citizens, permanent residents and friends of Singapore, Happy National Day - in advance for 9 August 2009.

Suing the Wrong Party

The situation in Singapore is very sad. The investors have to take an expensive and uncertain class action to sue the distributors of the credit-linked notes. Although the distributors were, in my opinion, negligent in selling the notes to the investors, they earned only a modest commission (maybe 3%) from the transaction.

A better solution is for the distributors to collaborate with the investors to sue the issuers of the credit linked notes. The issuers were the party that benefited most through the creation of these notes. They were also responsible for writing the prospectus in a manner to hide the true nature of the structured product, hence misleading not only the investors but the distributors as well.

The distributors had a fiduciary duty to their customers. It is only right that they should do all they can to help their customers. In this regard, the action of Great Eastern Life should be applauded. The other financial institutions should emulate this good example to do what is fair and right for their customers.

If the distributors, being financial institutions, buy over the credit linked notes for 50% of the invested sum (plus 50% of the ultimate proceeds), they will have the financial and legal means to sue the issuers to recover any damages that were caused by their action. The distributors can also decide on the best action to recover and protect the value of the underlying assets. In contrast, there is no way that the individual investors can take any of these actions.

Another possible action is for the government authority to take the appropriate action on behalf of the consumers. This was done in many countries, most notably in New York State and other parts of USA. Hong Kong is also adopting a similar approach, although done at a somewhat late stage.

I hope that the financial institutions and the government authority can take this action now. Better late than never.

Tan Kin Lian

Platform number in MRT stations

Do you have trouble identifying the right platform at our MRT stations? Read here for some suggestions to improve the sign. Share your own suggestions.

TRANSPARENCY IN INSURANCE: Policyholders underpaid?

Aug 6, 2009
Policyholders underpaid?

THE report last Friday, 'Insurance funds need more transparency', is a good start. But there is more.

We have invested more than $60,000 per household in whole life and endowment policies.

The money goes into a huge policyholders' fund at each life insurance company. We know little about the fund or how the money is invested.

It is very different from buying a unit trust, where you get a certain number of units in proportion to your ownership in the fund. These units amount to the fund's net asset value or NAV. It is updated and published daily.

Policyholder funds have the same concept but use the term 'asset share' instead of NAV.

Another difference is insurance companies do not disclose the asset share. This makes it easy for insurers to underpay policyholders without them knowing it. Insurers acknowledge this happens with early surrender policies, but do not say if it also happens with policies held to maturity.

As the rightful owners are policyholders who have left the fund - and supposedly cannot be found - it is called 'orphaned money' or money without a home.

Underpayments to policyholders accumulate over the years, and are now huge. Aviva in Britain made a distribution of $2.7 billion last year. In that case, policyholders got 70 per cent of the money and Aviva kept 30 per cent. The company claimed that legally, it could have kept it all.

That is one way insurers benefit from orphaned money. Another is earning a risk-free 10 per cent on the income it generates.

A third way is to provide a buffer to absorb losses in case of a market downturn. It means the fund avoids dipping into tier 1 capital, which is largely stockholders' money.

Officially, the rationale for holding orphaned money is different: It provides a buffer for policyholders to avoid bonus cuts in downturns. Not correct. Insurers typically cut bonuses in downturns - like now - while the orphaned money keeps growing.

Singapore insurers disclose nothing about orphaned money. We do not know how much there is or where insurers keep it. Does it remain in the policyholders' fund or has it been transferred to stockholders?

Larry Haverkamp

Thursday, August 06, 2009

Two Canadians' views about Singapore

Mr. Eric Brooks letter, asking Singaporeans to be grateful for the quality of life, was published in the Straits Times.

Mr. Wing Lee Cheong. a Singaporean who became a Canadian citizen, wrote a reply to the Straits Times, asking Mr. Brooke to be grateful to Canada. His letter is not likely to be published in the Straits Times. It can be read here.

Call to investors

I have written a few blog postings in RED, calling on the financial institutions to offer the Hong Kong settlement.
If you agree with them, you can send the blog posting to the financial institution that sold the credit linked note to you. You can also send it to your Member of Parliament or other channels, asking them to take up your matter.
If more investors do this, it may create an impact.

Volunteers for 22 August Gathering

I need volunteers to help with the following duties for the Gathering on 22 August:
a) Hold up the placards
b) Collect signatures for the Petition - you will be provided with a hard backing board and signature forms
c) Distribute flyers
d) Sell my books - 50% of proceeds will go towards the expenses
If you are able to help, please send an email to

Great Eastern Life is maganimous

When Great Eastern Life sold the Great Link Choice, the product was explained quite transparently. I recalled reading some description of the product in the newspapers. It was clear that on reaching a certain number of credit events, the value of the investment would drop sharply and after passing a threshold, it would be worthless.

The mistake was in allowing this type of "gambling" product to be sold to the general public. There is no way that any investor will be able to assess the risk of losing all their money. They had to rely on the advise of the financial adviser (i.e. insurance agent) and the credit rating agency. The Monetary Authority of Singapore should not have allowed the general public to gamble away all of their money for a small increase in interest rate.
Great Eastern Life made the mistake of selling this product, but several other insurance companies also sold similar products. NTUC Income, which was managed by me during this period, avoided this type of product, resulting in a decline in our market share.
Most policyholders who bought the product were probably told that there is a risk, but were probably assured (wrongly) that the risk is very small. It would be fair for the policyholders to take partial responsibility and bear a portion of the loss. Some policyholders might not have been told of the risk, or might have been misrepresented about the risk, but this is a separate matter.
It is magnanimous (highly generous) of Great Eastern Life to offer a full buyback of this investment product. I congratulate them for this goodwill gesture, which is costly to their shareholders. I hope that all policyholders who got back their money understand that they have been generously treated.
Great Eastern Life has to write off a loss of $250 million. It could be more, if the credit market continue to deteriorate. It could be less, if the credit market improves in the future. No one knows what the future will hold.
I like to wish all the best to Great Eastern Life and hope that they will be rewarded for their generosity, through an improvement in the credit market. In the best possible case, they may fully recover the $250 million that was set aside. At that time, I hope that the policyholders will not ask for the interest to be paid to them (as it would be an unfair expectation).
Whatever the outcome, Great Eastern Life would probably be rewarded by the goodwill gained from the compensated policyholders, their families and friends and the general public in Singapore.
I call on the other insurance companies who have sold similar products to offer a buyback arrangement. It does not have to be as generous as Great Eastern Life, but it should share the loss (or gain) equally between the policyholders and the insurance companies. This would be a fair settlement.
Tan Kin Lian

Conduct in this blog

Someone asked if I accept criticism of my views in this blog. The answer is "yes", but I expect the following conduct:
a) The person must state his/her real name and connection to this issue
b) The remark must be fair and respectful.
I do not accept criticism from any anonymous person. It is cowardly and unfair. They often denegrate into personal attacks.
I have also blocked attacks against other people or groups. I allow some to go through, especially if they express grievance of people who felt that they have suffered injustice (such as the episode on the credit linked notes).
I observe the following conduct in posting my views:
a) I do not criticise any person or pass judgement on them
b) I use my real name; people know my background
c) I write on issues that I agree with (being positive) and disagree with (giving an alternative view)
d) I show repect to the views of other people
I hope that other commenters in this blog will observe a similar conduct.
Tan Kin Lian

Wednesday, August 05, 2009

TODAY:Don't bet on FIs To follow GE's lead

5 August 2009

THE decision by Great Eastern Life to return the entire premium paid, less annual payouts, to those who bought its GreatLink Choice policies was nothing short of a public relations coup. The “goodwill gesture” has brought relief to some 18,000 people who bought these investment-linked insurance products. This virtually no-strings-attached gesture could cost GE Life in the ball park of $250 million. Money well spent, I say.

I’m sure that many among the nearly 10,000 investors here, who bought $665 million worth of toxic structured products including the Lehman Brothers Minibonds and the DBS High Notes 5, are hoping the 10 financial institutions (FIs) here involved in selling — or should I say, mis-selling — these products, might take a leaf out of the GE Life public relations manual and do the same — compensate all of them fully.

Don’t bet on it. I would be glad to be proven wrong, but the writing on the wall warns of more disappointment — for three reasons.

Let me remind you what the Trade and Industry Minister Lim Hng Kiang told Parliament a fortnight ago about the investigation by the Monetary Authority of Singapore (MAS). He said the “investigation findings do not support an across-the-board general settlement for all investors, irrespective of their individual circumstances”. For those familiar with Monopoly, that is virtually a “get-out-of-jail card” for the FIs.

Mr Lim noted “the nature and extent of failings identified and their potential impact on the sales process and customers differed for each institution and for each customer”. And while not all would accept the case-by-case approach, he said “this way we serve the interests of all parties, and also serve the wider public interest of growing Singapore’s reputation as a credible and reliable international financial centre”.

There is little pressure on FIs to settle in full. After all, an investigation by their regulator does not support an across-the-board settlement. As of May 31, the FIs have paid out $107.7 million in full or partial settlements to some 3,900 of the nearly 10,000 structured product investors.

The second reason offered: It’s an “apples and oranges” type of comparison. Well, that’s what the FIs will tell you. The product sold by GE Life was an “investment-linked insurance product”, whereas the now toxic structured product was an “investment product”. The GreatLink Choice policies were investment-linked products with underlying investments in CDO (collateralised debt obligations) instruments. The products were designed with built-in loss protection levels and wide diversification across various industries and geographical regions.

For the general investing public, and particularly for those who have lost money, the “apples and oranges” comparison is not so much about the type of products they were sold but about how the institutions that sold them the products have responded. Both products were adversely hit by the financial meltdown. GE Life has opted to bite the bullet and pay up. The FIs appear to be doing their best to ante up as little as they can.

The third reason that has been suggested: The FIs and GE Life are “very different entities” and their governance is different.

Being an insurer, actuaries at GE Life must have done a cost-benefit analysis and decided that in the long run the benefits of the repayment exercise would extend well beyond their policyholders, to the average man in the street, and also go a long way in restoring trust and confidence in the company, one of the largest local insurers. And I must agree. It is not easy to put a dollar value to public trust and confidence.

So what sort of cost-benefit analysis did the FIs do? With claims lodged, and lawsuits looming, they are going to see management time wasted, legal dollars spent and reputational cost incurred. I guess this must all add up to less than the $500 million the 10 FIs have not refunded.

Timing the stockmarket

Dear Mr. Tan,
I have invested in blue chips, including (names deleted). These stocks are high dividend yield stocks. I bought them during the Sep 2008; just before the crash of Lehman Bro's.

With the recent recovery in the stock market, my portfolio has finally break-even in value. I am wondering should I sell all my positions now to "play safe" or should I stay put and do nothing; collect the dividend.

I don't think the current recovery in the stock market is sustainable. Please advise...

I am not able to advice on timing decisions. If you sell the stocks, remember that the money earns you less than 1% p.a. in the bank. In my case, I am holding on to my equity investments, although they are still lower than my cost.

US Health debate: cost and benefits

Read this article. Some of the issues apply to Singapore.

Moderation of my blog

I adopt the following approach towards moderating my blog:

a) I allow people to express honest views, even if they disagree with my views
b) I allow more than 95% of comments to be published
c) I block comments that are malicious, defamatory or personal attacks

Those who wish to make personal attacks can do it in other blogs. You will not be granted the "freedom" to do it here. If they disagree with my moderation policy, they do not have to visit my blog.

New ez-Link card

A new ez-Link card is being introduced. What is the purpose of changing to this new card? Read about my experience here.

Higher motor premiums

Are you paying higher motor premiums? Here are some tips on how to reduce your cost of transport. Read here.

Pricetag to raise a child - US$ 221,190

The heavy price tag to raise a child is a major factor in the declining birth rate in developed countries, including Singapore. It is also the result of the "free market" policies adopted by these governments, that has allowed the cost to be exorbitant. Read this article:

If governments wish to see a higher birth rate, it has to recognise that the cost of raising a child (up to three in a family) should be borne by society, and not by the individual parents. Policies have to be adopted to reduce the cost burden, such as subsidised medical care for pregnancy and childbirth and access to free or subsidised education up to tertiary level.

If parents are relieved of this heavy cost, they are more inclined to take the other burden of parenting. This requires higher taxation, but it is fair. Those who choose to remain single can help to pay the parents to raise the children for the future of the nation. We have to think beyond self interest to the interest of the nation.

Tan Kin Lian

Early redemption of mortgage loan

Dear Mr. Tan,
I recently sold my property after holding it for 5 years. The mortgage loan was 85% of the property value. It took 10 weeks from the exercise of the option (by the buyer) and the completion of the sale.

According to my lawyer, the bank wanted to charge the following:

a) Early redemption penalty of 1.5% (which I am aware of and will accept)
b) Interest in lieu of short notice, as I have to give 3 months notice (which I am disputing)

I dispute the payment of the additional two weeks of interest on the following grounds:

a) This clause was not highlighted to me during contract signing
b) The 10 weeks to compete the sale of property is a typical time frame in the industry. Why should I extend my closing date in favour of the banks?
c) Why does a bank need 3 months to basically tabulate outstanding loan amount and receive money?
d) Why should I be charged interests on a Loan that doesn’t exist.

The bank has obviously insisted that the 3 months notice was scripted in the TC of the loan agreement. The principle behind this charge is seriously flawed. If this is a common bank practice across Singapore. I would like to question the validity and need for such a clause in a mortgage agreement.

Here are the steps that you can take:
1. Write a letter of complaint to the media, e.g. Straits Times.
2. Write a complaint to FIDREC,
3. Write a complaint to MAS, so that they are aware about how the banks are behaving.

I encourage consumers to fight against unfair terms, even though they have been placed into the complicated legal documents that they were asked to sign. I wish you all the best.

Tuesday, August 04, 2009

SCMP:Watchdog accused over Lehman probe decision

4 August 2009

Lawmakers criticised the financial regulator for suspending an investigation over the selling of non-minibond products after banks agreed a HK$6.3 billion deal to repay Lehman Brothers minibonds buyers.

Securities and Futures Commission chief executive Martin Wheatley said the commission had not only ended its top-down inquiry into minibonds, but also suspended investigation of other products from the 16 banks under the agreement.

He was speaking at a hearing of the subcommittee on the debacle surrounding the sale of Lehman Brothers financial products.

Democrat James To Kun-sun told the five-hour meeting: "It's about the minibonds agreement with the banks, but you {hellip} voluntarily suspended your statutory duty to investigate the systematic failure [over the selling] of non-minibonds products."

Another democrat, Kam Nai-wai, asked Mr Wheatley if he thought the interests of other buyers who bought Constellation Notes, a derivative similar to minibonds also issued by Lehman Brothers, or equity-linked notes had been sacrificed.

Lehman Brothers minibonds holders will receive letters before Monday from the banks who will repay them at least 60 per cent of the value of their initial investment.

Mr Wheatley said the investigation into non-minibonds products, involving about 500 cases, had been suspended because the latest deal required the banks to immediately implement improved complaints-handling procedures to resolve all complaints they received.

He said the investigation of three other banks, which were not included in the payout deal because they sold Lehman-related products apart from minibonds, continued. Investors should first turn to banks if they had complaints, and then the Hong Kong Monetary Authority.

Subcommittee chairman Raymond Ho Chung-tai said it would ask the commission to submit an original copy of the agreement, investigation findings of the 16 minibond-selling banks, as well as e-mail exchanges the commission had with the Monetary Authority and financial officials before it reached the deal.

Minibonds are not corporate bonds, but consist of high-risk credit-linked derivatives, and are marketed as a proxy investment in well-known companies. Hong Kong investors lost billions of dollars on minibonds guaranteed by Lehman Brothers when the US investment bank went bankrupt last September.

he Standard:SFC to tackle equity-linked notes fiasco after settling minibonds saga\

4 August 2009

The Securities and Futures Commission has vowed to speed up its investigation into sales of Lehman Brothers equity-linked notes after settling the minibond controversy.

But the watchdog's chief executive could not provide a timetable because it is negotiating with banks that sold the notes.

Martin Wheatley told lawmakers yesterday he could not say if the ELN issue would follow the minibond model, but ``a settlement is always the best outcome.''

The SFC and 16 distributing banks agreed on July 23 on a settlement proposal to pay back 60 to 70 percent of the original investments of thousands of minibond holders. But ELN investors _ and those labeled as ``professional investors'' and ``experienced investors'' _ were excluded. Banks have agreed to repay minibond investors up to HK$6.3 billion with the SFC ending its ``top-to-bottom'' investigation.

Wheatley said the SFC would let minibond holders decide if they will accept the offer, and would not resume its efforts even if half of the investors reject the deal.

``Investors could complain to the Hong Kong Monetary Authority or even go to court,'' he said.

``If there have been multiple purchases of complex financial products, then it's more difficult for them to argue that they could not have understood the complex nature of a structured product.''

SCMP:Flawed system

A few days ago I was in a hospital in Tsuen Wan waiting to have some X-rays taken when I read a notice, the gist of which was, that if someone claiming CSSA benefits was found to be doing so without being entitled to them that they could be liable to serve 10 years in prison. I was astounded, as only a day or so earlier I had read that all the bankers involved in the selling of the worthless minibonds had been let off scot free.

Banks and their agents can knowingly promote and sell worthless bonds to thousands of unwitting investors and receive nothing by way of punishment other than a warning not to do it again. But a family desperate just to survive - not to make money, just survive - could result in a family member going to prison for 10 years.

There must be something terribly wrong with the justice system for this to be so.

Internet shop - selling TKL books

There is a new interface for the Internet Shop, selling TKL books. It explains how to order the books. Try it here.

PROMOTION. I wish to give a promotion discount of 15% on purchase of my books until National Day, 9 August 2009. To qualify for this discount, you have to enter the promotion code BLOG.

The available items are (prices are before discount):
TKL Intelligence Quiz vol 1 and 2 $7.90
TKL Sudoku Vol 1 (challenging puzzles) : $7.90
TKL Shape Quiz: $7.90

Dementia: keep it at bay

Exercise your mind could hold off demeina, as explained in this Article.

Try my quizzes and puzzles, which are designed to exercise your mind. Check out here.

Monday, August 03, 2009

GreatLink Choice insurance products valued between 19.2 and 29.8 cents

By S.Ramesh, Channel NewsAsia Posted: 03 August 2009 2151 hrs

SINGAPORE: Great Eastern Life's customers who have bought its GreatLink Choice investment-linked insurance products have started receiving letters to exercise the redemption offer made by the insurer.

Last Friday, Great Eastern announced that it would buy back S$594 million worth of GreatLink Choice products from 18,000 policyholders.

In the letter, the insurance company's managing director Mr Tan Hak Leh said the financial crisis has had an especially adverse impact on the market value of GreatLink Choice 3, 4 and 5 products.

The prices of these tranches as at June 30 this year were between S$0.192 and S$0.298 and they have a credit rating of CCC- (minus) from Standards and Poor's. Each unit was sold at S$1.

Great Eastern added that in view of the challenging market conditions, it has decided to make a one-time redemption offer to all GreatLink Choice customers who had bought tranches 3, 4 and 5 of the structured product.

Customers have until August 28 to decide if they want to redeem the policy. Great Eastern said customers will receive their money within two weeks after the close of the offer.

The company added that the redemption price is 90.2 cents per unit, compared to the latest GreatLink Choice 3 price of 29.8 cents per unit.

Great Eastern's managing director, Tan Hak Leh, hopes the one time redemption offer will give customers peace of mind during these challenging times. - CNA/vm

Cheaper taxis

Do you like to take a taxi at half of the current price? This may be possible within the next few years. Find out how.

Survey: Favourite Singaporean expressions

Many Singaporeans use the following expression often, "be careful". It reflect a character trait - caution. This character trait make many Singaporeans scared to decide. They prefer to let other people decide for them. Do you agree?

Take part in this survey.

SCMP:Buy-back package must be extended, investors demand

3 August 2009

The buy-back package for Lehman Brothers minibonds should be extended to cover equity-linked notes (ELNs), 300 investors demanded yesterday when they met lawmakers.

The investors, mostly middle-aged, argued that as with minibonds, banks had used misleading promotional methods to sell ELNs and they were lured into buying the high-risk financial instruments, thinking there were no risks.

ELNs are investment products linked to the performance of some stocks. For most banks, the minimum investment was HK$500,000.

Investors were promised 10 to 30 per cent interest in the first month, and 4 to 20 per cent thereafter, depending on the performance of stocks. They should have been able to redeem the principal by the end of the investment period, which was usually a year.

Lawmaker Regina Ip Lau Suk-yee said the government and banks did not plan to buy back ELNs as most were bought by experienced investors who should have known the risk.

But the investors said they were just regular customers who had bought the products over the counter.

Retiree Ms Wong lost HK$500,000 after Lehman Brothers went bankrupt.

"They said the product was tailor-made for me. I trusted the bank, so I did not check the contract in detail," she said.

She had received about eight interest installments in the past two years, at an average of 12 per cent. But she said the product was now worthless. "If the bank staff had mentioned to me any one of the items in fine print, or that the product was risky, I would not have bought it."

In an earlier announcement, 16 banks promised to pay back at least HK$6.3 billion to 29,000 people who bought Lehman Brothers minibonds.

A government spokesman said the Monetary Authority and the Securities and Futures Commission should now focus on handling complaints about non-minibond structural products, such as ELNs. "The regulators will not tolerate any mis-selling conduct."

Fewer than 40 per cent of local investors are interested in buying Hong Kong government bonds or other bonds, an opinion poll by the Hong Kong Institute of Investors and the Investor Interest Concern Group found.

The findings came from a survey of 866 investors, conducted between June 6 and July 25. Of these, 38 per cent said they were interested in buying Hong Kong government bonds, with 62 per cent saying they were not.

NYTimes: Troubled Banks, Hugh Bonuses

The federal pay czar, Kenneth Feinberg, would be right to reject requests for big bonuses at banks feeding from the public trough.....

Mr. Feinberg must object to gargantuan payouts from banks that would be bankrupt
if not for taxpayers’ money. He should not be deterred by banks’ arguments that they will lose superstars and compromise profitability if they can’t pay lavishly.
The superstars caused the problem with financial wizardry they did not fully understand...

Most broadly, Mr. Feinberg must devise a structure to dissuade bankers from blowing up the economy again. In principle, one would like to see firms pay executives as they saw fit. But banks are different. They gamble with ordinary people’s money. They have proved they can do it extremely destructively.

Bankers’ remuneration was among the main factors behind this destructive behavior, encouraging them to take on dubious bets that provided big short-term returns at the expense of their institutions’ and the economy’s future stability...

NYTimes: Rewarding Bad Actors ( Who Make Us Poorer )

Americans are angry at Wall Street, and rightly so....

But crashing the economy and fleecing the taxpayer aren’t Wall Street’s only sins. Even before the crisis and the bailouts, many financial-industry high-fliers made fortunes through activities that were worthless if not destructive from a social point of view.

And they’re still at it. Consider two recent news stories....

Just to be clear: financial speculation can serve a useful purpose.... But speculation based on information not available to the public at large is a very different matter....

.... we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer.

European CityMobile and CyCab

There is an exciting project involving an automated (i.e. driverless taxi) to provide local transport. Read my blog here.

I have been writing on this matter for a few months, but I learned yesterday that the people in Europe had been working on the same idea much earlier.

Prudential Yield 15/20

Someone posted a comment that the Prudential 15/20 is similar to the Great Link Choice. Can policyholders of this product give feedback on:

a) The structure of the product
b) Does it guarantee against the failure of a certain number of CDOs
c) What is the current value of the various tranches of this product?

Sunday, August 02, 2009

NYT: Auction rate securities

The debacle hit individual investors especially hard.

When state regulators investigated the circumstances surrounding auction-rate failures, they found that some of the firms selling the securities had turned their aggressive sales pitches on small investors even when astute institutional buyers had already seen trouble and stopped buying.

Regulators have since forced many brokerage firms that underwrote or sold the securities to buy back their clients’ holdings.

Eight large and small firms have already settled, or agreed to settle, auction-rate cases with the Securities and Exchange Commission.

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