Auction Rate Securities Mess to End for Clients of Merrill, Citi and UBS

For those investors who believed that they were investing in cash-like instruments yet wound up in illiquid, albeit higher earning, instruments in mid-February, the nightmare is finally over.

Of particular interest is the Merrill settlement where the brokers apparently finally convinced senior management that tremendous damage was being done to the bank's reputation and that the bank was losing clients as a result of trying to defend an untenable position.

These banks settled just in time to avoid real investigations into their practices of putting investors in these instruments. What will probably now never be fully investigated was the manner in which these instruments were marketed (many in complete violation of the '33 Act) and the manner in which banks directed their sales efforts at brokerage customers only after institutional demand for these instruments dried up in mid-2007.