It felt so good to unload two weeks ago on Charles Schwab for lying about the safety and liquidity of auction-rate securities they sold me. Blogging as catharsis is underrated, especially if you have as much tied up as I do in these now illiquid ARSs. As I pointed out in my previous post, just about every other firm else has settled, but not Schwab. No, they blame everyone else — the underwriters, the customers and, now, even the New York attorney general.
Today, the big news is that the New York State Attorney General is making good on the threat to file suit. This welcome but not-unexpected turn of events gives me not only another chance to vent against Schwab, but also for the first time to document that I wasn’t the only customer they lied to.
Today, the Wall Street Journal has published excerpts of what the lies the brokers told customers. Check out some of what they told people:
Customer from Massapequa, N.Y. Customer: “You know, I’m not trying to make a ton of money. I just want to play it safe.”
Broker: “Understood.” …
Broker: “When you go to get out of this, even though you tell the rep sell it that means you want to stop the auction. The hardest part of this auction is getting into it. That is the tough part. Getting out of it is easy as just selling.”
Customer from Seaford, N.Y. Customer: “I can just get out every 7 days?”
Broker: “That’s right.”
Customer: “I can just give you 7 days and don’t renew and you put the money back in my account?”
Broker: “That’s correct.”
Customer from Remsenburg, N.Y. Customer: “It is some kind of short term muni-based piece of paper used as an alternative to [a] money market.”.
Customer: “So that is better than what I am getting?”
Broker: “Yeah, yeah. It is better than saving in the money market at the moment.”
Broker: “You pick up about 50 to 60 basis points over what you would get in a money market, and what you are giving up is next day liquidity.
Customer: “OK. I can adjust it by $100k amounts every week?”
Broker: “In terms of if you wanna get out?”
Customer: “Yeah.”
Broker: “Yeah.”
Customer: “I’ll know a week ahead of time if I wanna make a big investment.”
Customer from New Hyde Park, N.Y.
Broker: “And it’ll roll over monthly unless you call me and say, ‘Hey [Broker], don’t roll it over anymore.’”
Customer: “Oh, I see. OK.”
Broker: “And then next month I’ll stop the auction and all the cash will come back to your account.”
Customer: “OK, [Broker], thank you.”
Customer — location unidentified Customer: “Well I need the liquidity because I may buy a house soon.
Broker: “I see.”
Customer: “I sold my house and this is money that’s just there temporarily.”
Broker: “instead of looking for the highest yield, I would personally look at the highest security. And that would be my second thing. And probably periodic auction rate securities. That would work better than any bond mutual funds for you. That’s my humble opinion.”
Customer: “OK. And it would be safer?”
Broker: “It would be much, much safer, for sure.”
Assurances like these are what lead me to invest money. Schwab brokers delivered these same lies to me.
What’s Schwab’s response to this news? Well, they issued a press release this morning, saying, in essence, “Not our fault…not our problem…all those customers we talked to about safety and liquidity can schove it. We ain’t schettleing.”
Recent Comments