It’s not easy being an ordinary investor in these cynical times. Compliance Week’s May 13, 2008 article by Tammy Whitehouse quotes former SEC commissioner–now Washington lawyer–Roel Campos’ view of the purported “culpability” of investors who are stuck with illiquid auction rate securities which were sold to them as “cash equivalents”:

“The SEC issued a cease-and-desist order in 2006 against a number of broker-dealers to clear up claims of bid rigging and flush out new disclosures, so ‘investors will have a hard time saying they didn’t understand the mechanics.’”

When we mentioned in our March 12, 2008 post the $13 million penalty assessed by the SEC in 2006 in a settlement against the 15 largest financial firms over the bidding process for auction-rate securities, it was in the context of the financial industry’s practice of returning to business as usual, despite such occasional pesky slaps on the wrist by the regulators. Such fines are presumably supposed to deter future improper practices. The penalties aren’t broadcast to the firm’s customers as part of the sales pitch. They are not meant to serve as, nor do they rise to the level of, inquiry notice to ordinary, individual investors: that the better part of the market was about to implode because the industry no longer chose to participate in it.

At least the state regulators are continuing to investigate the so-called “mechanics,” and some are even obtaining relief for their constituents harmed in the ARS mess, such as the settlement extracted from one of the big firms by the Commonwealth of Massachusetts (mentioned in the same article) to pay state municipalities and government agencies $35 million. That’s the tip of the iceberg though, and so far there’s virtually no viable solution short of litigation for individual investors harmed in the ARS market bubble.