Some investors who were encouraged last fall to put their savings into auction-rate securities are angered that large institutional investors were selling off those kinds of investments at the same time.

"It’s a fact that in 2007 institutional owners owned 80 percent of the auction-rate securities and that by the end of 2007 they only owned 20 percent," said William Loehman of Fort Collins, Colo. "That tells you that something was going on there that they knew about and that individual people didn’t know about."

Loehman has been unable to retrieve $300,000 he has tied up in auction-rate securities issued by the Missouri Higher Education Loan Authority. He said he feels he is in a hopeless situation, powerless to do anything about it. "I feel like somebody really screwed me around, and I don’t have a lot of choices about how I can go about taking care of it," he said.

Auction-rate securities are financial investments similar to long-term bonds, except they are bought and sold on schedules of seven, 28 and 35 days, thus providing investors with a measure of liquidity. Investors receive monthly interest payments on the bonds and historically have been able to unload them during regular auctions as other individual buyers, banks or brokerage firms would step in to buy them.

However, because of tight credit markets generated in part by the subprime mortgage crisis, the auctions have failed. The market began seizing up Feb. 14

Loehman is not alone. From Florida to Arizona to Columbia, investors who put their savings into auction-rate securities issued by MOHELA as well as other student lending agencies have been unable to retrieve their funds since mid-February.

Heightening their exasperation is a recent report that said as brokers were encouraging individual investors to buy auction-rate securities, institutional investors like corporations were getting out of those type of investments. The New York Times reported last month that as big holders of these securities accelerated their selling late last year, Wall Street firms overseeing the auctions of the securities would have been under pressure to find new buyers.

A Florida investor, who spoke on the condition he not be identified, said his son bought $50,000 worth of auction-rate securities in November, and he bought $200,000 worth in December. He said his broker told him the investment was as safe and accessible as a money market certificate.

"They hosed the heck out of me," the man said.

Securities regulators from nine states including Missouri have formed a task force to investigate what promises brokers made to sell the securities. The office of Secretary of State Robin Carnahan began an inquiry last month, sending letters to eight brokerages and investment banking firms. The firms are: UBS; Stifel, Nicolaus & Co.; Merrill Lynch; Oppenheimer; Scottrade; Smith Barney; Edward Jones; and Wachovia, which bought the St. Louis-based brokerage firm of A.G. Edwards last year.

Ryan Hobart, a spokesman for Carnahan’s office, said the fact that big investors were getting out of the securities as small investors were buying them is one aspect of the investigation. Carnahan’s office has been designated the lead member of the task force that is looking into how Wachovia/A.G. Edwards sold auction-rate securities. Carnahan’s office has received about 30 complaints, Hobart added.

Class action lawsuits have been filed on behalf of some auction-rate security buyers against brokerages and banks.

Investors who have been unable to sell their securities have watched as the interest-rate return on the investment has taken a nosedive.

Deeann Griebel, a certified public accountant in Arizona, said one of her clients asked her to investigate why a $100,000 investment in MOHELA auction-rate securities had fallen to zero percent. Griebel said that, from her investigation of the bond prospectus, the rate should be in the 3 percent range. When she tried to get an answer from the St. Louis law firm of Thompson Coburn, which represents MOHELA, Griebel said she was faxed a sheet that said the agency was not answering questions.

Griebel said she advised her client to contact the office of the New York attorney general, which has launched an investigation of auction-rate securities. Mike Lause, the Thompson Coburn lawyer who represents MOHELA, said the calculation of interest rates "is not something our law firm is involved in on a regular basis."

Loehman said he is waiting to hear of the results of the investigations before proceeding. He said he was considering filing suit against his broker.

"I have trouble sleeping," Loehman said. "I’ve gained 20 pounds. I have trouble thinking about anything else. It’s just so frustrating on what to do."

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