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Local Aid and Finance AGs office offers assistance in review of investments
Concerned about possible cases of inadequate disclosure of investment risks, the attorney general’s office is offering to discuss any cases where a city or town experienced losses as a result of investing short-term or cash funds in certain types of securities.
Early this year, the city of Springfield discovered that its financial advisor, Merrill Lynch, had placed $13.9 million of the city’s short-term cash in risky investment products based on sub-prime mortgages, according to the attorney general’s office.
Although Merrill Lynch had represented that the investments were both safe and liquid, they never provided Springfield officials with disclosures explaining the substantial risks of the investments, the attorney general found. In fact, Springfield officials were unaware that their funds had been placed in “collateralized debt obligations” until months after the purchase transactions, at which point the securities had become virtually worthless.
After an expedited investigation, the attorney general’s office assisted Springfield in the recovery of the total value of the lost investment. The attorney general is continuing its review of Merrill Lynch’s conduct to determine whether penalties or further action are warranted.
Auction rate securities – also referred to as auction market securities, auction market preferred stock, variable rate preferred securities and money market preferred securities – are often presented as an alternative to cash or money market investments, according to the attorney general’s office. While these securities often pay interest rates similar to or slightly higher than those available in money markets, they also present significantly higher liquidity risk.
Recently, an increasing number of auction rate securities have been experiencing failed auctions. When an auction fails, it becomes nearly impossible to dispose of such securities at all, let alone at par value.
The attorney general’s office has the ability to bring cases under the Massachusetts False Claims Act whenever a potential defendant “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”
This law allows the attorney general to recover funds spent as a result of false or misleading statements, and to collect significant penalties, fees and costs. The statute also provides subpoena power under which the attorney general can obtain testimony under oath, answers to written questions and documentary evidence.
City or town officials who want to discuss this issue may contact Amy Markowitz in the Insurance and Financial Services Division at (617) 727-2200, ext. 2451, or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Local Aid and Finance AGs office offers assistance in review of investments
AGs office offers assistance in review of investments
Concerned about possible cases of inadequate disclosure of investment risks, the attorney general’s office is offering to discuss any cases where a city or town experienced losses as a result of investing short-term or cash funds in certain types of securities.
Early this year, the city of Springfield discovered that its financial advisor, Merrill Lynch, had placed $13.9 million of the city’s short-term cash in risky investment products based on sub-prime mortgages, according to the attorney general’s office.
Although Merrill Lynch had represented that the investments were both safe and liquid, they never provided Springfield officials with disclosures explaining the substantial risks of the investments, the attorney general found. In fact, Springfield officials were unaware that their funds had been placed in “collateralized debt obligations” until months after the purchase transactions, at which point the securities had become virtually worthless.
After an expedited investigation, the attorney general’s office assisted Springfield in the recovery of the total value of the lost investment. The attorney general is continuing its review of Merrill Lynch’s conduct to determine whether penalties or further action are warranted.
Auction rate securities – also referred to as auction market securities, auction market preferred stock, variable rate preferred securities and money market preferred securities – are often presented as an alternative to cash or money market investments, according to the attorney general’s office. While these securities often pay interest rates similar to or slightly higher than those available in money markets, they also present significantly higher liquidity risk.
Recently, an increasing number of auction rate securities have been experiencing failed auctions. When an auction fails, it becomes nearly impossible to dispose of such securities at all, let alone at par value.
The attorney general’s office has the ability to bring cases under the Massachusetts False Claims Act whenever a potential defendant “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”
This law allows the attorney general to recover funds spent as a result of false or misleading statements, and to collect significant penalties, fees and costs. The statute also provides subpoena power under which the attorney general can obtain testimony under oath, answers to written questions and documentary evidence.
City or town officials who want to discuss this issue may contact Amy Markowitz in the Insurance and Financial Services Division at (617) 727-2200, ext. 2451, or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Written by MMA Publications/Web Director John Ouellette
