Several of the modest-sized investment houses say they should not have to buy back auction-rate securities which they sold to their customers.

The dog ate their homework.

TDAmeritrade (AMTD), Oppenheimer (OPY), Raymond James (RJF), and several other discount brokers and financial firms have a novel and spurious defense. Since larger banks and brokerage companies made the market in auction-rates, the small investment houses were as much victims as their customers were. According to The Wall Street Journal, "The brokerages say they were merely sellers of auction-rate securities, which differentiate them from the investment banks that ran the auctions."

The reasoning is a cynical disavowing of responsibility. It rests on the logic that the managements at firms like TDAmeritrade never read the fine print when they took on the right to sell auction-rates. In other words, they were morons and dupes.

The argument is senseless. The smaller firms took on the risks and rewards of marketing auction-rates just as they do stocks, bonds, or mutual funds. Imagine Raymond James saying that it wants to blame Morgan Stanley (MS) for the poor performance of one of the MS mutual funds. If a Raymond James customer loses money in a fund managed by Morgan, all parties understood that there was some risk. And, Raymond James made a commission selling that investment to its customer.It would not ask Morgan to make the client whole.

Oppenheimer and its peers knew exactly how the auction-rate markets worked. They almost certainly sold the paper to their clients as "cash equivalents". Now they would like to wash their hands of the matter. Ignorance is not an excuse, particularly when it is a facade.

Douglas A. McIntyre

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