SEC Allows Auction-Rate Manipulators When They Disclose Intent (Darrell Preston)

   ``You make your point, you collect your money and everyone goes on as they were before,'' said Richard Lehmann, a registered investment adviser in Miami Lakes, Florida, and president of Income Securities Advisors Inc., regarding the SEC's action. ``That's the way a lot of compliance is.''

  By Darrell Preston

  March 16 (Bloomberg) -- The Securities and Exchange Commission, after sanctioning Wall Street's biggest financial institutions for misdeeds in the $260 billion auction-rate market, now lets the same firms manipulate investor purchases as long as they disclose their intentions.

  Citigroup Inc., Bank of America Corp. and 13 more investment banks get inside knowledge of bids when they run auctions to set the interest rates on the securities. They can use the information to put in their own bids and influence the outcome, even after paying a $13 million fine to settle SEC claims about the practices last May.

  The difference now is banks have to tell investors that they use inside information with a notice like this one by Goldman Sachs Group Inc.: ``When we submit an order for our own account, we are likely to have an advantage over other bidders because we will have knowledge of some or all of the other orders placed through us.''

  The disclosures have safeguarded $650 million in fees that Thomson Financial data show the industry reaps each year from selling the securities, corporate or municipal debt with interest rates reset periodically through auctions. The control that dealers exercise over the market may force issuers to pay higher yields or leave investors with lower returns.

  ``You make your point, you collect your money and everyone goes on as they were before,'' said Richard Lehmann, a registered investment adviser in Miami Lakes, Florida, and president of Income Securities Advisors Inc., regarding the SEC's action. ``That's the way a lot of compliance is.''

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