-- Q: I'm a big holder of auction-rate securities through a brokerage that is yet to settle with regulators and agree to pay the money back. What should I do?
A: The auction-rate securities debacle has been painful for investors.
Many bought these bonds thinking they were a safe place to park money. The idea was that those issuing the bonds could use the money for 30 or more years, and pay a rate of interest to investors based on periodic auctions.
Investors would bid on the bonds, and the interest rate would be reset based on demand. In theory, investors should have been able to sell their auction-rate securities at any time. And that's probably why many were told by brokers that money invested in auction-rate securities was like money in a money market fund.
But, early this year, demand for these bonds, and thus the auctions, collapsed. Suddenly, investors were no longer able to sell the bonds and get their money back. That created huge problems for people like Bernadine Abbott, who you can read about here.
Many brokerage firms have agreed to give investors their money back. A partial list of the firms that have agreed to return money is available on the website of New York State Attorney General Andrew Cuomo.
Regulators have insisted they are going to keep pressing this matter and there may be more brokers that agree to return money.
You could wait and hope that your broker is eventually investigated and agrees to return money. There are some tips on what to do in this previous Ask Matt column.
Another course of action is to think about selling your bonds on an electronic clearinghouse like restrictedstockpartners.com. If you do this, you'll want to make sure you understand all the risks and keep painstaking records. If your broker eventually settles, you'll need to be able to prove how much you lost by selling the bonds.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at email@example.com. Click here to see previous Ask Matt columns.