New York investigates auction securities

NEW YORK (CNNMoney.com) -- New York Attorney General Andrew Cuomo is investigating 18 Wall Street investment banks regarding the collapsed auction rate securities market, according to an article from the Wall Street Journal.

The report says that the New York Attorney General has issued subpoenas early this week that included large-sized financials such as UBS, Merrill Lynch, and Goldman Sachs, with even more subpoenas coming soon.

Cuomo's investigation follows similar probes by the North American Securities Administrators Association, led by members from Massachusetts, Florida, Georgia, Illinois, Missouri, New Hampshire, New Jersey, Texas and Washington.

Auction rate securities are assets borrowed for a long period of time at short-term interest rates, which are typically lower than long-term rates. Auction rate securities' interest rates are reset frequently in bidding, and their investors try to make more from the cash it raises by selling the securities than the money it loses by paying the dividend.

But that market broke down in February as the auctions lost support from dealers, leaving investors with very high dividends and no one to whom the investors can sell the securities.