April 1 (Bloomberg) -- If you have less than $10 million to invest, you can go dangle.

That seems to be what securities firms are telling clients.

How else are we to explain the ongoing story of the collapse of the $300 billion-plus auction-rate securities market?

After almost three decades of backstopping the process, the major firms earlier this year all decided to stop, leaving thousands of investors holding securities they can't sell. Asked about who held such securities, the firms answered that it was wealthy individuals.

They dissemble. I suspect the real reason the securities firms gave this answer was to marginalize an entire group of investors they now find expendable. In fact, this group's real sin is that they aren't wealthy enough for Wall Street securities firms to care about them.

The ones that have e-mailed me all seem to have anywhere between $50,000 and several million dollars' worth of auction- rate securities, either the bonds or the preferred shares sold by closed-end funds.

That's not enough. I don't know where the new line of demarcation exists -- maybe it's $10 million, maybe it's $20 million. There are firms that don't even want to know you unless you walk in the door with $25 million or $50 million.

Who's Rich?

It sounds outrageous, and not a little, well, obnoxious, especially because the firms that stopped supporting the market, and that are now either the targets of class-action lawsuits or government probes, are companies such as Merrill Lynch & Co., UBS AG, Bank of America Corp. and Citigroup Inc., all names that specialize in ``retail,'' or individual, investors.

Or at least they seemed to. Massachusetts Secretary of State William Galvin must have recognized as much last week before he sent out subpoenas to UBS, Merrill and Bank of America for information on how they sold auction-rate paper. The complaints he had been getting weren't from your so-called high- net-worth individuals, I'm wagering.

Those are the people the big firms care about, and cater to, and you don't hear any complaints from them about being stuck with auction-rate securities, do you? I suspect that if you have $25 million at one of these outfits, you either wouldn't have been sold this stuff, or your broker or ``wealth manager'' would have taken care of your problem.

Chump Change

And I find it difficult to believe that if you had, say, $50 million at a firm they would tell you the value of your auction-rate securities was all of a sudden 5 percent lower because, guess what, you can't sell them. UBS did that on March 28, even announcing that this was ``the right thing to do'' and ``in the best interest of our clients.''

Say you have $250,000 saved up from a lifetime of toil, or maybe you inherited $2 million, or perhaps you struck it rich on ``Antiques Roadshow,'' and now have a cool $4 million.

You know what? Keep it. Put it in your mattress. Securities firms, for all their touchy-feely advertising, don't want to know you. They can't make enough from you to justify the expense of an account manager. That seems to be the reason they can afford to alienate the thousands of investors who hold these auction-rate securities.

And believe me, these people are alienated. They are looking at the way their brokerage houses are treating them, and saying ``Never again.'' I'm not exactly sure, though, where they will go when they do get their money, their measly, piddling single-digit old millions.

Get Rid of It

The class-action lawsuits tell quite a tale.

They all say pretty much the same thing. In March 2007, the Financial Accounting Standards Board required that auction-rate securities had to be listed on balance sheets as short-term investments rather than cash equivalents. Corporate and institutional clients no longer wanted them.

The big securities firms kept ``managing'' the auctions, putting in bids themselves when there wasn't enough demand. They knew that a ``failed'' auction might create a panic. They found themselves holding more auction-rate securities.

So they told the brokers to get rid of it. And when they did, the securities firms pulled the rug out from under the market, saying they would no longer support the auctions.

They would still run the auctions, mind you (at a fee of 0.25 percent of the par value of securities auctioned, per annum), but they would no longer bid for the stuff being offered. And then? ``Investors have no prospect of ever selling their securities through the auction market,'' as it says in one lawsuit.

How rude. And yet, despite what Mom told me, money can buy manners. It just takes more of it these days.

(Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Joe Mysak in New York at jmysakjr@bloomberg.net

Last Updated: April 1, 2008 00:01 EDT