Galvin eyes auction-rate market
Massachusetts' top securities regulator is probing the $330 billion auction-rate securities market that recently became the latest victim of the global credit crisis as liquidity dried up.
The state's secretary of the state, William Galvin, has asked nine prominent investment managers, including Boston-based Eaton Vance, MFS Investment Management, and Pioneer Investment Management, for help by supplying information on how their clients have reacted.
By March 7, Galvin wants the firms to say what they are telling their clients to do in the wake of growing evidence that some shareholders of closed-end funds that own these instruments want to sell but cannot do so.
"The inquiry seeks to learn if there have been any redemption problems in closed-end funds, and if they have used auction rate markets for leverage," the secretary's spokesman, Brian McNiff, said.
Auction-rate securities are long-term bonds that behave like short-term debt and have long been popular with conservative investors because of their tax-exempt status. They are often issued by municipalities and their interest rates are often reset frequently. Last week however the auctions failed to find much interest.
MFS, Calamos Financial Services, Evergreen Investment Management, Eaton Vance and Pioneer declined immediate comment on Galvin's request.
Allianz Global Investors, BlackRock Financial Management, Nuveen Asset Management and John Hancock were not immediately available for comment.
Galvin, who has waged an aggressive campaign against brokers and fund managers seen to be cheating investors out of their nest eggs, said, "The impact on closed-end municipal bond funds can be daunting for the investor who has sought a safe and dependable harbor for life savings." (Reuters)
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