ANALYSIS: Carnahan touts $10 billion returned to investors

Sunday, September 5, 2010 | 3:18 p.m. CDT

JEFFERSON CITY — Ten billion dollars. That figure is in nearly every speech Missouri Secretary of State Robin Carnahan delivers while campaigning for the U.S. Senate.

"We've gotten money back for those investors who were defrauded by big financial institutions — $10 billion," Carnahan said last weekend while speaking to members of an education union in Jefferson City.

"That's like real money for real people — at a time when folks in Washington were asleep at the switch, when they were supposed to be doing this job," Carnahan added.

Carnahan, a Democrat, cites the money recouped by her Securities Division as a prime example of how she can stand up to powerful interests on behalf of regular folks. She then suggests her Republican rival, Rep. Roy Blunt, would do just the opposite.

Blunt hasn't publicly questioned Carnahan's dollar figures. In fact, he seldom refers to her work as secretary of state — an office which Blunt also held a couple of decades ago. Instead, Blunt focuses on how Carnahan would vote in the U.S. Senate — asserting she would be a rubber stamp for President Barack Obama, an assertion she denies.

The Associated Press recently asked Carnahan how she arrives at that $10 billion figure. The secretary of state's office provided spreadsheets detailing about $10.8 billion in restitution to investors over the past five years.

Nearly all of that money came from settlements involving auction rate securities. And nearly all of that came from one case.

In August 2008, the Missouri secretary of state's office was the lead negotiator in a settlement in which Wachovia Securities agreed to repurchase about $9 billion of auction-rate securities from investors who got stuck when the markets collapsed. The settlement involved more than 40,000 investors nationwide.

Auction-rate securities are a form of long-term debt issued by corporations, cities and student loan companies. They have variable interest rates that are reset at weekly or monthly auctions. Investment firms often promoted auction-rate securities as similar to money-market accounts of certificates of deposit, with higher interest rates.

But after the $330 billion auction-rate market collapsed in February 2008, many customers were unable to sell their investments — essentially getting stuck with something for the long-term that they had thought they could cash in virtually any time they wished.

New York Attorney General Andrew Cuomo was involved in several high-profile investigations into the financial companies. The North American Securities Administrators Association also set up a task force on auction-rate securities, and regulators from various states divided up duties.

Missouri took the lead on the Wachovia case partly because Wachovia had recently acquired A.G. Edwards, which was based in St. Louis, and because Carnahan's office had received numerous consumer complaints.

Carnahan said she spent many hours negotiating the settlement. After the AP began working on this story, a former Wachovia executive involved in the negotiations called the AP to vouch for Carnahan's personal involvement. Carnahan's office also provided the AP with references.

"She was very actively involved. She was engaged at a very high level," said Benette Zivley, director of the inspections and compliance division for the Texas State Securities Board, which also was involved in the Wachovia negotiations.

Of the $9 billion national Wachovia settlement, Carnahan's office estimates about $788 million went to investors in Missouri.

The $10 billion figure also includes a $545 million national auction-rate securities settlement with Commerce Brokerage Services (about $284 million of which went to Missourians) and a $180 million national settlement with Stifel, Nicolaus and Co., of which about $15 million went to Missouri investors.

Carnahan said she counts the full value of those three national settlements because her office was the lead negotiator.

The $10.8 billion figure also includes the amount of money returned to Missouri investors through a dozen additional nationwide auction-rate securities settlements in which other states took the lead. Carnahan notes that her securities director, Matt Kitzi, is co-chairman of the national task force on auction-rate securities.

Carnahan's figure also includes at least $16 million of restitution for Missourians from cases involving other types of investments.

Carnahan said the $10 billion she cites on the campaign trail is a conservative figure.

"We've been working our tails off to get money back to people," Carnahan said.

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