The Financial Industry Regulatory Authority (FINRA) which administers investor arbitration cases over auction-rate securities, skirted losses from the securities by selling its holdings months before the market collapsed.
It has been reported that FINRA which is responsible for educating and protecting investors, owned as much as $862.2 million of the debt before exiting the market in the spring of 2007, less than six months before auctions began to fail, according to spokesman Herb Perone. The Washington-based group is conducting arbitration hearings filed against banks by bondholders stuck in the $176 billion market.
Investors who were sold the securities as money-market alternatives say Finra, a non-profit corporation owned by banks that oversees 5,000 brokerage firms and 659,000 brokers, failed to protect them. The market froze in February 2008 when banks, which had supported the debt for two decades through periodic dealer-run auctions, stopped buying bonds that investors didn’t want as losses from subprime mortgages spread.
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