Conversation with Phil Trupp
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
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
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.
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.
did deregulation contribute to the problem? What are your
recommendations to prevent something like this from happening
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.
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.
were some of the most powerful stories you heard from ARS
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.
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
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.
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