Q & A

A Conversation with Phil Trupp

Q: How did investors beat Wall Street? Why did you decide to fight when so many others backed down?

A: We put pressure on state regulators, especially state attorneys general. This was an essential tactic in gaining justice for auction rate securities victims. We engaged in write-in campaigns, made countless telephone calls, and tore down the walls with persistent emails and political pressure. The battle was engaged on all fronts, from Wall Street to Washington to state securities regulators.

We can only speculate on the reasons others backed down. Clearly, some were fearful or didn’t know what to do. Others were intimidated by their brokers. But those of us who decided to fight had two specific goals: to get our money back and to find an avenue of justice.

Q: How much money was involved?

A: The original amount was $330-$336 billion. That’s enough to run about 20 per cent of the federal government, including the Department of Homeland Security. That number has been reduced by two-thirds through forced redemptions of auction rate paper. The rest is still under challenge.

Q: What do you believe was behind the ARS market crash of February 2008? Was it a setup by Wall Street to line their pockets? What role did the government play?

A: A lack of market liquidity is the official answer to your first question. But that excuse was a ruse. The ARS market had been around for more than 20 years. After the fall of Lehman Brothers, the market began to crack and lose some of its profitability. The banks and brokerages, looking for new ways to make cheap, fast money, rushed to dump auction rate securities off their books—and they did it in concert, right up to the last day. And where did they dump it? Into the portfolios of unsuspecting investors! The industry no longer wished to prop-up the market and left investors holding the bag.

As for the government: The Securities and Exchange Commission (SEC) made a few, halting steps on behalf of investors, although its lack of real action served to enable the scam. The Financial Industry Regulatory Authority (FINRA), the financial industry’s paid-for self-regulator, dumped more than $600 million in ARS out of its own portfolio in late 2007 without a word to the investing public. We want to know what FINRA knew, when they knew it, and why they hid their action from the public.

Q: How did deregulation contribute to the problem? What are your recommendations to prevent something like this from happening again?

A: The financial landscape prior to the failure was one of laisser-faire. I believe this hands-off position, begun in the Clinton era and carried to even greater extremes by the Bush Administration, was at the core of the ARS collapse as well as the 2008 “meltdown” which led to our current recession. Wall Street, with a wink and a nod from Washington, knew it could get away with financial murder. Some, but not all, solutions to the laisser-faire atmosphere are contained in the Dodd-Frank regulatory reforms, as well as the most recent Basel Accords.

Still, we haven’t solved the “too big to fail” problem, nor have we thoroughly come to grips with the problem of banks taking big risks in proprietary trading. No matter what we do, markets will continue to gyrate. It’s part of the industry’s DNA. I do, however, believe in enforcing the law of ill-gotten gains in the form of substantial claw backs and severe civil and criminal penalties. . We worry about foreign terrorists. In America 9/11 is still raw. Yet the terrorists who attacked on 9/11 caused less nationwide destruction and havoc than Wall Street’s 2008 meltdown, which I view as an attack of nuclear proportions.

Economic terrorism by many other names is still alive and well in the financial community, and only the harshest penalties will deter some, but surely not all, gaming of the system.

Q: What were some of the most powerful stories you heard from ARS victims?

A: Most of the stories were about lives disrupted and in some case ruined. We heard from a man who spent his life building a company, selling it, and placing his profits temporarily in ARS. He was ruined overnight by a broker he trusted. We heard of cancer victims who couldn’t pay for care. There were shutdowns of hospitals and medical clinics and schools and municipal entities. Charities went out of business. Students could no longer pay their college loans and were forced to drop out of school. The stories of injury number in the hundreds of thousands. The ARS scam was a major calamity. It will take years to sort out the carnage.

Q: What advice do you have for investors whose money is still frozen?

A: Each case is different. There are certain administrative steps to follow. File a complaint with the SEC and FINRA. Send copies of your complaints, with a personal cover letter, to your broker and your broker’s boss, and don’t forget to send the same to the president of the bank or brokerage who is holding your money hostage. Keep up a steady stream of complaints. Threaten all involved with law suits. Hold your broker personally responsible. Contact your state securities administrator and do so frequently. Last resorts are the so-called “secondary markets” where you bargain for pennies on the dollar, or mediation which is simply another pennies-on-the-dollar event.

FINRA arbitration is a last resort, although too often the panel of FINRA inquisitors is comprised of industry hacks. FINRA, however, has a pilot program of arbitration in which an investor can choose an all-public panel to hear the case. This is a distinct advantage if your case isn’t complex. It’s also a good idea to hire a securities attorney.
Does all this sound grim? Well, it is. That’s why group pressure works and individuals too often are left in the dust. That’s where “Be Ruthless” comes in.

Q: What is your involvement today?

A: To continue fighting. It’s the only reasonable course of action. My book, after which this website is named, has an appendix with names, phone numbers and email addresses of regulators around the country. I believe everyone still stuck with frozen auction rate paper should use the book as a reference guide and a weapon against those who refuse to redeem their investments at par value. Our motto is: Be Ruthless and get your money back!

Better Than Cash
TV program about "Ruthless"


Interview on Fox 5 News!


Interview on
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