Money goes in, doesn't come out

Franklin Biddar wants his money, and says Bank of America Corp. won't let him have it.

The 65-year-old real estate investor from Toms River, N.J., said he hasn't had access to money the bank invested for him in auction-rate preferred shares since the market seized up in mid-February. Even when he agreed to sell $100,000 worth of the securities to Fieldstone Capital Group, Charlotte-based Bank of America wouldn't release the bonds, saying the transaction wasn't in his interest, he said.

“I can't do anything,” said Biddar, who was so eager to unlock his money that he was willing to accept 11 percent less than what he paid for the securities. “Bank of America got me into these securities that are supposed to be as safe as a money market, and now they won't get me out.”

Bank of America, UBS AG, Charlotte-based Wachovia Corp. and at least four dozen other firms that sold $330 billion of auction-rate securities are thwarting attempts to create a secondary market that would allow investors to access their cash, according to investors. Dealers claim they are saving customers from needless losses on securities they marketed as similar to cash-like instruments.

Bank of America spokesman Matt Card said the bank isn't “talking about specifics of the auction-rate securities topic.” Calls to Biddar's broker, Thomas Cali, and Cali's regional manager, Jon Foster, weren't returned.

Since mid-March, at least 24 proposed class-action suits have been filed against brokerages claiming investors were told the securities were almost as liquid as cash. Bryan Lantagne, the securities division director for Massachusetts Secretary of State William Galvin, is head of a task force for nine states looking at whether brokers misrepresented the debt as an alternative to money-market investments.

“By allowing customers to sell at a discount, the banks allow customers to establish damages,” said Lantagne.

Investors ranging from retirees to Google Inc., the owner of the most popular Internet search engine, have been trapped in the debt, which pays interest rates set at periodic auctions.

Dealers that ran the bidding also faced losses from debt linked to subprime mortgages and stopped being willing to pick up the slack on auction-rates. Before February, they routinely bought the auction-rate debt that went unsold, reassuring investors that they could get their money back on a moment's notice. Now, about 99 percent of public auctions for securities sold by student-loan agencies and closed-end funds fail, as do 48 percent of auctions for municipal debt, according to data compiled by Bloomberg.