New York's newly elected attorney general, Eric Schneiderman, has been a crime-fighter most of his political life -- even serving as deputy sheriff in Berkshire County, MA before his election in 1998 to the New York state senate. As successor to governor-elect and former AG Andrew Cuomo, Schneiderman promises to take on the big leagues of crime -- namely, Wall Street.
We wish him every success. But Schneiderman, a democrat, faces a daunting clean-up job in the office before he can get down to the serious business of policing the bankers.
Though Cuomo scored major successes during his tenure as AG, his office was said to be unresponsive -- even indifferent -- to investor complaints and frustrations. The office has been especially unavailable to investors who participated in a uniquely deceptive money market account sold by Oppenheimer & Co. and dozens of other banks and brokerages.
For nearly three years, these firms have been clinging like ravenous bears to nearly $130 billion in auction-rate "cash equivalents," sold to investors and institutions as a completely safe, liquid, and Triple-A rated money market investment -- until it wasn't. Thousands of investors nationwide continue to suffer because of this scam, which was partially settled by Cuomo during his tenure. It's up to Schneiderman to finish what Cuomo has left undone.
Investors, meanwhile, have complained that assistant AGs have been difficult, if not impossible, to deal with. "Wall of silence," is how one investor put it. As a reporter, I decided to test these complaints. Repeatedly, I telephoned Assistant Attorney General Daniel Sangeap, left at least three voice mail messages and received zero response. I attempted to contact others and was similarly greeted by voice mails and no call-backs.
"They put my e-mails in the junk mail bin," complained one investor seeking information from the AG's office. "I'm completely shut out."
An Oppenheimer victim also confirmed the silent treatment by the AG's office.
"We pay their salaries," he fumed. "You'd think they're running a little bureaucratic fiefdom."
Still another investor, working behind the scenes, reported that the next round of Oppenheimer redemptions from its frozen cash market is scheduled later this year or early 2011. Try as I might, I could not get Albany to confirm repayment dates.
Pointing to this frustrating silence, one investor commented: "Here's the fun part. Despite Oppenheimer's improved numbers -- higher dividends, expansion into Asia, and new hires -- the redemption is smaller than the last one. We'd like to know why." Mr. Schneiderman, are you listening?
Earlier this year, with Oppenheimer crying poverty in the face of a much-publicized expansion, Cuomo worked out a partial settlement that required the return of about $35 million to investors. This time around, only about $20 million will be returned, leaving thousands of investors wondering if a back door deal was struck prior to the 2010 election.
"They [Oppenheimer executives] are masters of positioning money," an investor explained. After checking Oppenheimer's latest expense report, the investor said most of the expenditures were classified as "other."
"If you pulled this on your tax returns with the IRS, you'd go to prison," he complained.
Joel Oppenheim, 67, a Houston-based commercial real estate consultant, recently told the Wall Street Journal that after the auction-rate money market froze in 2008, he took out a $2 million loan to pay his taxes.
"It's been devastating because I don't know what my future will look like," Oppenheim told Wall Street Journal reporter Daisy Maxey. He has $2.5 million trapped at Oppenheimer and is paying $5,500-a-month in interest on his loan.
These stories, among many others, only complicate the job facing Schneiderman, who says he wants to "restore confidence" in Wall Street. Is "confidence" another word for "trust"? If so, the new AG is off to a dream-worthy start.
To be fair, Oppenheimer isn't the only company refusing to live up to its obligation to fix the auction-rate money market mess. E-Trade, Charles Schwab, Raymond James, Mesirow, and Pimco, among others, have dug in their heels.
Job Number One for Schneiderman is clear. Before he can ease the public's anger and begin to reform Wall Street's economy-wrecking ways, he will be challenged to quell the seeming imperiousness ways which characterizes the New York AG's office.
It's long past time for the Albany to put the "public" back into public service. We wish Schneiderman well. We will monitor his progress with high hopes for a more consumer-friendly approach, coupled with more clout against Wall Street's incorrigible gang of bad boys.