Bank and mutual fund customers have parked nearly $3 trillion into money market mutual funds and most mistakenly believe the investments are entirely risk-free despite not being insured by the FDIC. But in fact, some money market funds in recent years quietly began investing in Fannie Mae and Freddie Mac, mortgage-backed securities, and even harder to value assets such as timber and highways. According to the Los Angeles Times, many banks mistakenly believed that if money market funds contained a diversified portfolio of high risk items, the overall portfolio would remain secure.
Signs of trouble are now looming. Legg Mason Inc., Sun Trust and Bank of America have all announced they are injecting huge swaths of emergency capital into their swooning money market funds. Experts are saying that because Wall Street pumped out so many kinds of new customized instruments, they no longer know the value of what’s tied to money market funds.
It’s been said that no bank would ever let their money market funds break the buck, but this market has taught us that savvy investors must expect the unexpected. Investors in auction rate securities also thought they were investing in risk free cash equivalents.
It’s not hard to predict that investors may claim they were defrauded by investing in money market mutual funds without having any disclosure about such funds holding toxic mortgage backed securities and other speculative asset backed securities. Banks and brokers who did not disclose such risks should expect to hear from investors through securities arbitration claims.
Zamansky LLC offers free consultations for investors to help them determine their next course of action. We are investigating high profile money market funds including the Charles Schwab Advisor Cash Reserves and similar funds from Morgan Stanley, Barclays, UBS, Duetsche Bank among others.
Articles and blogs about money market mutual funds.