DOW JONES NEWSWIRES

Massachusetts issued subpoenas to UBS AG (UBS), Merrill Lynch & Co. (MER) and Bank of America Corp. (BAC) for documents and testimony to determine whether Massachusetts investors were properly informed of the risks that auction-rate securities might become illiquid.

Until the auctions began failing earlier this year, auction-rate securities had been thought of as safe, cash alternatives. The demise in the market, which trades preferred stock or debt instruments with rates that are periodically reset at auction, has left many investors strapped for cash.

The auction-rate securities in question are primarily preferred shares in closed-end mutual funds. Last month, Secretary of the Commonwealth William F. Galvin, whose office issued the subpoenas, sought information from nine asset managers on their experiences with closed-end funds in the wake of auction failures in the auction-rate securities market.

"Within the last couple of weeks, my office has received many calls from people who thought they were investing in safe, liquid investments only to find that they had, in fact, purchased auction market securities that are now frozen and they cannot get their money." Galvin said.

The state is also investigating whether these investments were suitable for those investors. In addition, the state is looking into the role that the major investment banks which sold those securities had in the events that caused the auctions to fail.

Numerous closed-end funds are trying to help their investors get out of the securities.

-By John Flowers, Dow Jones Newswires; 201-938-5964; john.flowers@dowjones.com

  (END) Dow Jones Newswires
  03-28-08 1218ET
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