Law Prof Stuck with $75K in Auction-Rate Securities
A law professor at Southern New England law school is stuck with $75,000 in auction rate securities that she can’t redeem.
Immigration law professor Irene Scharf bought the securities, at one time said to be relatively safe, to pay the college tuition of her two sons. But the market for the debt instruments has dried up, and Scharf isn’t covered by state settlements with UBS, the investment bank that originally sold her the securities, or Smith Barney, where she transferred her account, the New York Times reports.
The securities, sold at weekly auctions that established the interest rate, are backed by financial instruments such as student loans, municipal bonds or subprime-mortgage debt. Scharf moved her auction rate-securities to Smith Barney when her broker moved to that firm.
“We lived very frugally for years so I would not have to take out loans when my kids went to college,” Scharf told the Times. “I was not informed of any risk; my broker kept assuring me nothing was safer. When I asked about redeeming them, he said I’d only need to give him two or three days’ notice to redeem.”
