Yourlawyer.com (Auction Rate Securities Fraud News)

Citigroup Reaches Auction Rate Securities Settlement with Pennsylvania

Wed, 15 Jul 2009 00:00:00 -0700

Citigroup has reached an agreement with the state of Pennsylvania over auction rate securities. Under the settlement, Citigroup will pay the Pennsylvania Securities Commission $2.31 million, and offer to buy back auction rate securities from 1,200 retail investors in Pennsylvania who held the securities from Citigroup as of Jan. 21, 2008.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed earlier in 2008 Thousands of investors were bewildered to find out that the investments they were sold as cash equivalents were illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. Over the past year, various institutions have reached agreements with regulators, including UBS AG, Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley, Merrill Lynch & Co., and Wachovia Corp. to buy back more than $60 billion of auction rate securities from their clients.

The Pennsylvania settlement with Citigroup is part of a larger settlement reached with 12 states. The settlement requires Citigroup to offer to buy back $978.1 million worth of auction-rate securities from the Pennsylvania investors.

According to the Philadelphia Inquirer, in May, New Jersey reached a settlement with Citigroup requiring the bank to pay $3.3 million and offer to repurchase as much as $623.5 million in auction-rate securities from 2,873 individual investors in the state.

Delaware reached a settlement with Citigroup in April, requiring the firm to pay a $309,000 fine.

Oppenheimer Faces Auction Rate Securities Lawsuit

Thu, 20 Nov 2008 00:00:00 -0800

The state of Massachusetts has filed an auction rate securities lawsuit against Oppenheimer & Co. According to Reuters, this is the first time a regulator has brought such a suit against a broker that resold the securities. The complaint, brought by Massachusetts Secretary of State William Galvin, charges Oppenheimer with deceiving customers in its sales of auction rate securities.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed earlier this year. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. In the past several months, various institutions have reached agreements with regulators, including UBS AG, Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley, Merrill Lynch & Co., and Wachovia Corp. to buy back more than $60 billion of auction rate securities from their clients.

But those deals do not cover an additional $160 billion worth of auction rate securities bought through mutual fund firms or brokers that didn’t underwrite the debt. In September, Fidelity Investments reached an agreement to buy back $300 million worth of the securities to appease state regulators.

In a statement announcing the Oppenheimer lawsuit, Galvin said "Oppenheimer executives betrayed the trust of their clients by continuing to market these auction-rate securities as safe cash equivalents when they knew this was not the case." The statement said Oppenheimer customers in Massachusetts could not access $56 million of their money when the market froze up in February.

According to The Wall Street Journal, Galvin's office has obtained evidence which allegedly indicates that as Oppenheimer officials discussed problems in the auction rate securities market, several sold personal holdings between Feb. 1 and Feb. 12. The market collapsed between Feb. 12 and Feb. 14.

According to Galvin's statement, Oppenheimer kept its customers "in the dark, even as they, themselves, got out of that tottering market."

Galvin's lawsuit seeks to force Oppenheimer to repay customers who sold auction rate securities at a loss and to make whole those who can't sell, the Wall Street Journal said.

Fidelity Offers Auction Rate Securities Buy Back

Tue, 16 Sep 2008 00:00:00 -0700

Despite its claims that it bared no responsibility for the auction rate securities meltdown, discount broker Fidelity Investments has agreed to buy back $300 million worth of the securities to appease state regulators. Several Wall Street investment banks have struck similar deals with regulators, but unlike those institutions, Fidelity did not underwrite or issue the bonds.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed earlier this year. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. Bank of America, UBS AG, Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley, Merrill Lynch & Co. Citigroup, and Wachovia Corp. all reached settlements with regulators, and agreed to buy back more than $60 billion of auction-rate securities from their clients.

But those deals do not cover an additional $160 billion worth of auction rate securities bought through mutual fund firms or brokers that didn’t underwrite the debt. In the past, discount brokers like Fidelity and Charles Schwab - which usually do not give their clients investment advice - has said that it should not have to meet the same obligation as the Wall Street firms that issued the auction rate securities. But many Fidelity investors have claimed that it was one of the firm's reps who first suggested auction rate securities as an investment.

Last month, Massachusetts Secretary of State William F. Galvin, sent a strongly-worded letter to Fidelity which said he hoped the Boston-based brokerage would follow the lead of the large investment banks, and repurchase the now-illiquid securities. Last week, in a letter to Galvin, Fidelity President Rodger A. Lawson said that the firm pledged to buy back the securities within 90 days.

Despite the buy back plan, Fidelity is not taking any responsibility for the auction rate mess. "Fidelity’s involvement with auction rate securities is very different than the role of investment banks and underwriters with whom you have settled previously,” Lawson wrote. The Fidelity auction rate buy back, the letter said, is being done because the firm has a “long history of going above and beyond to serve our customers.”

Galvin said last week that he hoped other brokers would follow Fidelity's lead. "I think it's significant that this is the first downstream vendor of these instruments that's come up with a plan, and I think it sets a standard for the others," he said.

Bank of America Strikes Deal to Buy Back Auction Rate Securities

Wed, 10 Sep 2008 00:00:00 -0700

Bank of America has reached an agreement with Massachusetts state regulators to buy back $4.8 billion worth of auction rate securities. The Bank of America settlement covers all illiquid auction rate securities sold to retail customers nationwide, as well as those purchased by some small business owners and charitable organizations.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed earlier this year. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. Last month, UBS AG, Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley, Merrill Lynch & Co. and Wachovia Corp. all reached settlements with regulators, and agreed to buy back more than $40 billion of auction-rate securities from their clients.

The latest agreement to buy back auction rate securities was announced this morning by Massachusetts Secretary of the Commonwealth William Galvin. Bank of America, which didn’t admit any wrongdoing, said it will repurchase about $4.5 billion in securities, while Galvin’s office said the number is actually about $4.8 billion. This latest agreement was announced just two weeks after Massachusetts said Bank of America agreed to buy back $43 million of the securities from the commonwealth's government agencies.

According to The Wall Street Journal, Bank of America will offer to buy back during the fourth quarter all illiquid auction-rate securities at par value from all retail customers nationwide, as well as small-business customers with up to $10 million in deposits and charitable-entity customers with up to $25 million in deposits.

Auction Rate Securities Probe Focusing on Fidelity, Goldman Sachs Ties

Wed, 27 Aug 2008 00:00:00 -0700

A probe into auction rate securities sold by Fidelity Investments is concentrating on the discount broker's relationship with investment bank Goldman Sachs, The Wall Street Journal is reporting. Investigators with the New York attorney general's office are trying to determine if Fidelity's close ties with Goldman Sachs gave it an incentive to sell the now-illiquid securities.

According to The Wall Street Journal, the attorney general's office wants to know whether Fidelity sold auction rate securities underwritten by Goldman because it was getting other services from the investment bank, said a person familiar with the matter. The Journal's source said the services include possible Goldman underwriting of private offerings that Fidelity develops for wealthy investors, and financial-counseling services that Goldman's Ayco unit provides to Fidelity executives.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. In the past two weeks, UBS AG, Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley, Merrill Lynch & Co. and Wachovia Corp. have reached settlements with regulators, and have agreed to buy back more than $40 billion of auction-rate securities from their clients.

But those deals do not cover an additional $160 billion worth of auction rate securities bought through mutual fund firms or brokers that didn’t underwrite the debt. Some investors still stuck with the worthless investments are looking to the brokerages to buy back the auction rate securities they sold.

Fidelity is a discount brokerage and does not provide investment advice; it mainly places buy and sell orders on behalf of customers. Fidelity has allowed customers to buy auction rate securities online since 2006. Before that, customers bought them after talking to a Fidelity representative.

Last week, the Massachusetts Secretary of State, William F. Gavin wrote a letter to Fidelity, saying he hoped the Boston-based brokerage would follow the lead of several large investment banks, and repurchase the now-illiquid securities.

But most brokerages do not appear too interested in that idea. Like investors, the brokerages say they were deceived about the condition of the auction rate securities market. According to The Wall Street Journal. the Regional Bond Dealers Association sent a letter last Monday to regulators including New York Attorney General Andrew Cuomo, the Securities and Exchange Commission and the North American Securities Administrators Association asking that investment banks be required to buy back all the securities for which they conducted auctions, not just all the securities they sold to their own clients.

Fidelity Should Buy Back Auction Rate Securities, Massachusetts Officials Says

Wed, 20 Aug 2008 00:00:00 -0700

Fidelity Investments is being urged to buy back auction rate securities it sold to some of its clients. In a strongly worded letter, Massachusetts Secretary of State William F. Galvin, said he hoped the Boston-based brokerage would follow the lead of several large investment banks, and repurchase the now-illiquid securities.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed earlier this year. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. In the past two weeks, UBS AG, Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley, Merrill Lynch & Co. and Wachovia Corp. have reached settlements with regulators, and have agreed to buy back more than $40 billion of auction-rate securities from their clients.

But those deals do not cover an additional $160 billion worth of auction rate securities bought through mutual fund firms or brokers that didn’t underwrite the debt. Some investors still stuck with the worthless investments are looking to the brokerages to buy back the auction rate securities they sold.

But brokerages are not too interested in that idea. Like investors, the brokerages say they were deceived about the condition of the auction rate securities market. According to The Wall Street Journal. the Regional Bond Dealers Association sent a letter Monday to regulators including New York Attorney General Andrew Cuomo, the Securities and Exchange Commission and the North American Securities Administrators Association asking that investment banks be required to buy back all the securities for which they conducted auctions, not just all the securities they sold to their own clients.

In his letter yesterday, Galvin said, "I am sure that Fidelity understands the seriousness of this situation to its customers. Therefore, I request that Fidelity take immediate steps to resolve this matter on behalf of those customers." Fidelity has also received inquiry letters from New York Attorney General Andrew M. Cuomo, whose office is investigating auction-rate fraud at several major firms.

Fidelity is a discount brokerage and does not provide investment advice; it mainly places buy and sell orders on behalf of customers. According to The Boston Globe, Fidelity has allowed customers to buy auction rate securities online since 2006. Before that, customers bought them after talking to a Fidelity representative.

In response to Galvin's letter, Fidelity said it did not actively market auction rate securities and said it had an "extremely small" number of customers who brought them. Spokeswoman Anne Crowley told The Boston Globe that "we believe the underwriters should stand behind their securities."

Brokerages Not Keen on Buying Back Auction Rate Securities

Tue, 19 Aug 2008 00:00:00 -0700

Some brokers who sold auction rate securities say they should not be expected to buy back the now-worthless investments from their customers. Instead, the brokerages are arguing that the parties responsible for the auction rate mess - the investment banks that underwrote the vehicles and ran the auction where they were bought and sold - should be made to buy back all auction rate securities, including those sold by brokers.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

In the past two weeks, UBS AG, Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley, Merrill Lynch & Co. and Wachovia Corp. have agreed to buy back more than $40 billion of auction-rate securities from their clients. But those deals do not cover an additional $160 billion worth of auction rate securities bought through mutual fund firms or brokers that didn’t underwrite the debt. Some investors still stuck with the worthless investments are looking to the brokerages to buy back the auction rate securities they sold.

But broker-dealers like Raymond James Financial Inc., Stifel Nicolaus & Co., Oppenheimer & Co. and Fidelity Investments say they have no intention of buying back the auction rate securities they sold. They contend that they were deceived about the condition of the auction rate securities market in the same way investors were.

"None of the rest of the market knew" about how "auction dealers allegedly controlled the whole auction process for 25 years," Michael Decker, chief executive of Regional Bond Dealers Association, which represents regional brokerages, told The Wall Street Journal.

The brokerages want the buy back deals struck with investment banks to cover all investors, including those who used their services to purchase the vehicles. According to The Wall Street Journal. the Regional Bond Dealers Association sent a letter Monday to regulators including New York Attorney General Andrew Cuomo, the Securities and Exchange Commission and the North American Securities Administrators Association asking that investment banks be required to buy back all the securities for which they conducted auctions, not just all the securities they sold to their own clients.

Lawyers for brokerage-firm customers who have filed arbitration claims over auction rate securities allege that many brokerage firms either knew exactly what they were selling or didn't bother to ask the investment banks hard questions about the risks of the securities.

For their part, securities regulators and others investigating the auction rate mess say they have not yet determined the culpability of the brokerages. A spokesperson for Cuomo's office told The Wall Street Journal said that its investigation is not over yet. "The culpability of downstream brokerages will depend on the facts uncovered in our investigation; what did they know about the liquidity risks of the auction-rate securities and when did they know it, and most importantly what representations, if any, did these brokerages make to their customers," the spokesperson said.

Auction Rate Securities Buy Backs Leave Out Some Investors

Mon, 18 Aug 2008 00:00:00 -0700

In the past two weeks, several large investment banks have agreed to spend billions to buy back the illiquid auction rate securities they once marketed as safe, cash equivalent investments. But now, it appears that that the buy back offers won't be much help to some investors.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Under pressure from state and federal securities regulators, investment banks have been lining up to buy back some of the auction rate securities they once touted a safe investments. Late last week, Wachovia Corp. reached an agreement with the Securities and Exchange Commission (SEC) to buy back nearly $9 billion worth of auction rate securities. A day earlier, New York Attorney General Andrew Cuomo's Office announced that JPMorgan Chase & Co. and Morgan Stanley agreed to buy back more than $7 billion in auction-rate securities and pay fines totaling $60 million. The week before, UBS AG and Citigroup said they would redeem about $26 billion of the auction-rate securities and pay fines of a combined $250 million. Merrill Lynch & Co. offered to repurchase about $10 billion of the securities last week and is still in talks with regulators.

Unfortunately, these agreements don't apply to $160 billion worth of auction rate securities bought through mutual fund firms or brokers that didn't underwrite the debt. Cuomo told Bloomberg.com that the auction rate probes so far have focused only on the investment banks that acted as underwriters for the securities because those banks have the largest concentration of clients holding the debt. Citigroup was the market's biggest underwriter, arranging $55.3 billion in municipal auction rate debt sales between 2000 and 2008, followed by UBS at $42.4 billion.

But Cuomo says his probe of the auction rate mess is far from over. He told Bloomberg.com that his office has subpoenaed about 25 companies that sold auction rate securities. The investigation has expanded to include Fidelity Investments and Charles Schwab Corp. of San Francisco. Eventually, Cuomo plans to take action against smaller brokers and firms that sold the now-worthless securities.

But smaller brokers and dealers have argued that they are mere victims of the auction rate securities, and that the underwriting investment banks provided the same misleading information to them that was provided to investors. According to Bloomberg.com, one firm, Oppenheimer Inc., told its clients last week it is working with the Washington-based Regional Bond Dealers Association to press for SEC intervention in the probes so banks that neither underwrote securities nor brokered auctions are not forced to buy back for vehicles.

Wachovia Reaches Auction Rate Securities Settlement

Fri, 15 Aug 2008 00:00:00 -0700

Wachovia Corp., one of the biggest banks to be caught up in the auction rate securities mess, has agreed to buy back billions of dollars worth of illiquid investment vehicles, the Securities and Exchange Commission (SEC) announced today. Wachovia is the fifth bank in the past week to agree to such a settlement.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. Last month, a group of state regulators probing the crash of the auction rate securities market visited the headquarters of Wachovia Securities in St. Louis seeking to access documents and conduct interviews about the firm’s sales and marketing practices, according. The group, which was led by official from Massachusetts, included state regulators from Missouri, Illinois, Massachusetts, New Jersey, Pennsylvania and other states. They were all members of the North American Securities Administrators Association, and were part of a task force looking into possible irregularities in the auction rate securities market.

Under the terms of the settlement announced today, Wachovia will buy back $5.7 billion worth of auction rate securities held by individual investors, small businesses and charitable organizations. The bank will also offer to purchase about $3.1 billion of securities held by all other Wachovia investors, according to an SEC news release. The settlement includes investors who bought the securities through Wachovia Securities LLC and Wachovia Capital Markets LLC. New York Attorney General Andrew Cuomo said Wachovia would also pay civil penalties of $50 million.

The SEC said the settlement was reached with the help of Missouri's secretary of state, the North American Securities Administrators Association, New York's attorney general and the Financial Industry Regulatory Authority. The regulator's investigation into the auction-rate securities market is ongoing.

Wachovia is just the latest bank to agree to an auction rate securities settlement. Yesterday, the New York Attorney General's Office announced that JPMorgan Chase & Co. and Morgan Stanley agreed yesterday to buy back more than $7 billion in auction-rate securities and pay fines totaling $60 million. Last week, UBS AG and Citigroup said they would redeem about $26 billion of the auction-rate securities and pay fines of a combined $250 million. Merrill Lynch & Co. offered to repurchase about $10 billion of the securities last week and is still in talks with regulators.

Report Says Auction Rate Securities Concerns Raised in 2005

Wed, 13 Aug 2008 00:00:00 -0700

A prominent accounting firm raised questions about auction rate securities in 2005, years before the market went bust. According to a report on thestreet.com, in May of that year, PricewaterhouseCoopers issued an opinion that said auction rate securities should not be considered a cash equivalent vehicle.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market. In the past week, investment banks such as UBS, Citigroup, Merrill Lynch and Morgan Stanley have reached settlements with regulators or made offers to buy back billions of dollars worth of auction rate securities. Probes are still ongoing, and other banks like Wachovia Corp., have revealed that they are facing investigations over their auction rate securities business.

While many investors were shocked when they learned that their auction rate securities were illiquid, PricewaterhouseCoopers was questioning the investment banks' claims that the vehicles were cash equivalents as early as 2005. According to thestreet.com, a note from one of the firm's opinions said, "The legal maturity of auction rate securities is 20 to 30 years and, as such, the securities ordinarily should not be classified as cash equivalents, but rather as investments." The information was part of the accounting firm's reference materials available to clients on the firm's Web site.

Thestreet.com article said PricewaterhouseCoopers based its opinion on a Financial Accounting Standards Board (FASB) statement which says that an investment vehicle cannot be considered a cash equivalent unless it has a maturity less than three months. Many auction rate securities have maturities going out 20 to 30 years.

Unfortunately, neither the banks nor regulators did anything about the concerns raised by PricewaterhouseCoopers. In fact, according to thestreet.com, the banks lobbied the FASB against the firm's opinion, and accused Pricewaterhouse of disrupting the market.

Morgan Stanley Offers to Buy Back Auction Rate Securities

Tue, 12 Aug 2008 00:00:00 -0700

Bowing to pressure from state and federal regulators, Morgan Stanley is the latest investment bank offering to buy back auction rate securities. But the New York State Attorney General's Office, which has been investigating the auction rate securities market for the past five months, says Morgan Stanley's offer is "too little, too late."

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various state and federal agencies have been investigating the auction rate securities crash, amid suspicions that investment banks misled their clients about both the liquidity of the vehicles and safety of the market.

Yesterday, the New York Attorney General's Office sent letters to Morgan Stanley, JPMorgan Chase and Wachovia Corp. urging the banks to begin settlement talks immediately. The office was pressing the banks for agreements to buy back auction rate securities similar to those it reached with UBS and Citigroup last week.

The Citigroup settlement involves the buyback of $7 billion worth of auction rate securities from some 40,000 individual investors. The settlement also includes payment of $100 million in fines. The fine will be paid to New York state and the North American Securities Administrators Association, which represents securities regulators in the 50 states and the District of Columbia. The SEC is also said to be considering additional fines against Citigroup.

UBS, the largest bank in Switzerland, has also settled with the SEC and state regulators. Under terms of the settlement, UBS will buy back $19.4 billion of failed auction-rate securities and pay a $150 million fine.

Yesterday, Morgan Stanley offered to buy back about $4.5 billion in auction-rate securities from retail clients. In a statement, Morgan Stanley said it will begin to repurchase notes at par value no later than Sept. 30.

Despite the offer, the New York Attorney General's office was not placated. "This is too little, too late, and our investigation into Morgan Stanley continues," Alex Detrick, a spokesman for the office, said in an e-mail to Bloomberg News.

Attorney General Andrew Cuomo wants investment banks to create auction rate securities buyback programs for retail customers, reimburse consumers forced to sell off their securities at "below par" prices, and institute a claims resolution mechanism.

New York AG Targets More Banks in Auction Rate Securities Probe

Mon, 11 Aug 2008 00:00:00 -0700

Less than a week after announcing settlements with UBS and Citigroup over the way the investment banks handled their auction rate securities business, the New York Attorney General's office is pressing three more banks to enter into similar settlements. Today, New York Attorney General Andrew Cuomo told JPMorgan Chase & Co., Morgan Stanley and Wachovia Corp that his office wants to begin settlement talks immediately.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Cuomo has been investigating the auction rate securities business for the past five months. Last week both UBS and Citigroup reached settlements with Cuomo's office, other state regulators and the Securities and Exchange Commission (SEC). The Citigroup settlement involves the buyback of $7 billion worth of auction rate securities from some 40,000 individual investors. The settlement also includes payment of $100 million in fines. The fine will be paid to New York state and the North American Securities Administrators Association, which represents securities regulators in the 50 states and the District of Columbia. The SEC is also said to be considering additional fines against Citigroup.

Today, it was announced that UBS, the largest bank in Switzerland, had also settled with the SEC and state regulators. Under terms of the settlement, UBS will buy back $19.4 billion of failed auction-rate securities and pay a $150 million fine.

According to letters sent to Wachovia, JPMorgan and Morgan Stanley, Cuomo is looking for deals similar to the ones struck with UBS and Citigroup. "It would be unfair to consumers with accounts at other firms, as well as to the firms that settled, if our investigation were to slow down or stop," David Markowitz, Cuomo's top investor protection lawyer, wrote in the letter. "Our investigation's focus is shifting to the next group of market participants."

Banks Lining Up to Settle Auction Rate Securities Charges

Fri, 08 Aug 2008 00:00:00 -0700

Since yesterday, two large investment banks- Citigroup and UBS - have agreed to buy back billions of dollars worth of auction rate securities they sold to investors when the market for the vehicles was on the verge of collapse. The Citigroup and UBS auction rate security buybacks are part of settlements with the Securities and Exchange Commission (SEC) and state regulators. A third bank, Merrill Lynch - perhaps sensing which way the wind is blowing - said yesterday it will also buy back auction rate securities it sold.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Various federal and state investigations have been trying to determine if investment banks mislead their clients on the liquidity of auction rate securities.

The Citigroup settlement with the SEC, New York Attorney General Andrew Cuomo and other state regulators was announced yesterday. It involves the buyback of $7 billion worth of auction rate securities from some 40,000 individual investors. The settlement also includes payment of $100 million in fines. The fine will be paid to New York state and the North American Securities Administrators Association, which represents securities regulators in the 50 states and the District of Columbia. The SEC is also considering additional fines against Citigroup,

Today, it was announced that UBS, the largest bank in Switzerland, had also settled with the SEC and state regulators. Under terms of the settlement, UBS will buy back $19.4 billion of failed auction-rate securities and pay a $150 million fine.

One investment bank, Merrill Lynch, isn't waiting for securities investigators to come after it. Hours after the UBS settlement was announced, Merrill offered to buy back $10 billion of auction rate securities that it had sold to thousands of individuals.

It is not surprising that investment banks are suddenly anxious to appease investigators and investors over auction rate securities. Emails and other evidence obtained by investigators has indicated that the banks knew for months that the auction rate securities market was on the verge of collapse, but continued to represent them as safe investments. What's worse, as the market for the vehicles became more unstable, they marketed the securities even more aggressively, and touted them as cash equivalents.

The rush to settle by so many banks indicates the evidence against them was damning. As one securities lawyer told Bloomberg News, "There is no way for the institutions to win this fight, and they know that."

Citigroup Negotiating Auction Rate Securities Buy Back

Wed, 06 Aug 2008 00:00:00 -0700

The Wall Street Journal is reporting that Citigroup is in negotiations with the New York State Attorney General's Office and others to buy back illiquid auction rate securities. Last week, New York Attorney General Andrew Cuomo had threatened Citigroup with a lawsuit over its handling of auction rate securities.

The New York Attorney General has been investigating Citigroup's auction rate securities business for the past five months. In a letter written August 1, Cuomo's office accused Citigroup of deceptively selling auction rate securities as cash equivalent, liquid investments. Among the allegations in the letter is one accusing the bank of failing to tell investors that, from last August until earlier this year, the market was kept afloat only because the bank placed bids in auctions for the securities. Finally, it accuses Citigroup of violating state law by destroying “recordings of telephone conversations concerning the marketing, sale, distribution or auction” of the securities. According to The Wall Street Journal, the recordings requested by Cuomo’s office in an April subpoena.

Cuomo has threatened to file suit against Citigroup within weeks if the bank does not buy back the auction rate securities it sold, and compensate some investors for damages they have incurred. The letter also said that the Attorney General’s office wants the firm to pay an unspecified penalty.

According to sources interviewed by The Wall Street Journal, Citigroup is negotiating with Cuomo's office, state security regulators and the Securities and Exchange Commission to resolve the matter. A deal may be in the works that would require Citigroup to buy back $5 billion of illiquid auction rate securities from investors and pay regulators a fine of $100 million.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents. Unfortunately, because of the credit crises, the market for auction rate securities crashed. Thousands of investors have been bewildered to find out that the investments they were sold as cash equivalents are now illiquid.

Citigroup Threatened with Auction Rate Securities Lawsuit

Tue, 05 Aug 2008 00:00:00 -0700

Citigroup's auction rate securities business will likely be the next target of New York State Attorney General Andrew Cuomo. Cuomo has already sued investment bank UBS for its handling of auction rate securities, and last week threatened to take the same action against Citigroup.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents.

Unfortunately, because of the crisis in the credit markets, auctions of these securities haven’t been successful because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction bonds would be downgraded. Bloomberg.com has also reported that brokers such as Goldman Sachs Group Inc. and Citigroup Inc. also purposely permitted the auctions for preferred securities, which aren’t insured, to fail by not committing their own capital to sales when there weren’t enough bidders. As a result, the market for auction rate bonds has pretty much vanished, leaving a lot of investors holding auction rate securities they once thought were safe vehicles with no way to sell them.

According to The Wall Street Journal, Cuomo's office threatened to go after Citigroup for alleged fraud in the marketing and sales of auction-rate securities and for destroying evidence after being subpoenaed by his office. A lawsuit could be filed within weeks if the two sides don't reach a settlement.

In a letter written to Michael Sharp, general counsel of Citigroup's wealth-management arm by David Markowitz, the head of the investor-protection bureau in Cuomo's office, said its five-month probe showed the bank "committed fraud by making material misrepresentations and omissions" in its underwriting, distribution and sale of the securities. The letter accused the bank of wrongly telling customers the securities were safe, liquid and cash-equivalent. It added that the bank failed to tell investors that, from last August until earlier this year, the market was kept afloat only because the bank placed bids in auctions for the securities. Finally, it accuses Citigroup of violating state law by destroying "recordings of telephone conversations concerning the marketing, sale, distribution or auction" of the securities. According to The Wall Street Journal, the recordings requested by Cuomo's office in an April subpoena.

The letter demanded that Citigroup buy back the auction rate securities it sold, and compensate some investors for damages they have incurred. The letter also said that the Attorney General's office wants the firm to pay an unspecified penalty.

Meanwhile, David Aufhauser has resigned from UBS, the first executive of the investment bank to do so since Cuomo filed suit against it last Thursday. Aufhauser was General Counsel at UBS. According to sources interviewed by The Wall Street Journal, Auhauser was the "Executive A" referred to in Cuomo's lawsuit. According to that complaint, "Executive A" and others at UBS allegedly sold personal holdings of auction rate securities several months ago when they knew the market was falling apart, but did not warn UBS clients that the market was on the verge of collapse.

UBS Sued Over Auction Rate Securities

Wed, 30 Jul 2008 00:00:00 -0700

As expected, the New York State Attorney General has filed a lawsuit against Swiss banking giant UBS for allegedly pushing everyday investors into buying troubled auction rate securities. Just days later, UBS announced that it was suspending David Shulman, its U.S. fixed income unit head and global head of municipal securities. Though UBS would not comment on the reason's for Shulman's suspension, he was in charge of the auction rate securities business for the bank.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents.

Unfortunately, because of the crisis in the credit markets, auctions of these securities haven’t been successful because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction bonds would be downgraded. Bloomberg.com has also reported that brokers such as Goldman Sachs Group Inc. and Citigroup Inc. also purposely permitted the auctions for preferred securities, which aren’t insured, to fail by not committing their own capital to sales when there weren’t enough bidders. As a result, the market for auction rate bonds has pretty much vanished, leaving a lot of investors holding auction rate securities they once thought were safe vehicles with no way to sell them.

The New York lawsuit, filed last Thursday, charges UBS with falsely marketing and selling auction-rate securities as safe, cash-equivalent investments at a time when the market for these securities was in danger of collapsing. The Attorney General's office said that its investigation also revealed top UBS executives sold off approximately $21 million of their personal holdings of auction rate securities, after they learned of troubles in this segment of the market.

New York Attorney General Andrew Cuomo said the aim of the lawsuit was to get UBS to buy back the securities at their face value. Cuomo also said that his office continues to investigate a number of other financial institutions and their actions regarding auction rate securities.

This is not the first state lawsuit filed against UBS. In June, Massachusetts state securities regulators filed a civil suit against the firm. In that filing, the state disclosed showed several emails between Shulman and UBS executives that it claimed showed the bank suffered from conflicts of interest in its activities in the $300bn auction rate securities market, which collapsed in February.

Under pressure from regulators recently, UBS agreed to repurchase up to $3.5 billion of tax-exempt auction-rate securities from clients, package them and sell new debt backed by those securities to money-market funds. In May, UBS also agreed to return $37 million to the Massachusetts Turnpike Authority and 17 municipalities that invested in auction rate securities. They were not permissible investments under the municipalities’ official investment mandates.

New York AG Close to Filing Suit Against USB Over Auction Rate Securities

Wed, 23 Jul 2008 00:00:00 -0700

The New York State Office of Attorney General is said to be close to filing a civil lawsuit against USB AG for its handling of auction rate securities.   Massachusetts regulators had already filed suit against the investment bank over the same issue in June.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents.

Unfortunately, because of the crisis in the credit markets, auctions of these securities haven’t been successful because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction bonds would be downgraded. Bloomberg.com has also reported that brokers such as Goldman Sachs Group Inc. and Citigroup Inc. also purposely permitted the auctions for preferred securities, which aren’t insured, to fail by not committing their own capital to sales when there weren’t enough bidders. As a result, the market for auction rate bonds has pretty much vanished, leaving a lot of investors holding auction rate securities they once thought were safe vehicles with no way to sell them.

New York is investigating USB and other investment banks to see if they told investors that auction rates securities could become illiquid. USB clients hold about $25 billion worth of auction rate securities.

According to The Wall Street Journal, the New York auction rate securities lawsuit could include allegations of malfeasance by senior UBS executives.   Because UBS's trading operations for auction rate securities are based in New York, the New York lawsuit could seek a broad resolution for UBS auction rate clients nationwide.

According to The Wall Street Journal, the New York attorney general's office has now subpoenaed 30 entities and 100 individuals, seeking information about the sales of auction rate securities. Among those subpoenaed are Citigroup Inc., Merrill Lynch & Co., J.P. Morgan Chase & Co. and Goldman Sachs Group, Inc., and high-ranking executives at various firms as well as heads of municipal-bond desks, risk managers, financial advisors and others.

Last week, under pressure from regulators, USB agreed to repurchase up to $3.5 billion of tax-exempt auction-rate securities from clients, package them and sell new debt backed by those securities to money-market funds.   USB also settled in May with the Massachusetts attorney general's office and agreed to return $37 million to the Massachusetts Turnpike Authority and 17 municipalities that invested in auction rate securities. They were not permissible investments under the municipalities' official investment mandates.

Investors Sue Bank of America Over Auction Rate Securities

Tue, 22 Jul 2008 00:00:00 -0700

Bank of America has been named in a class action lawsuit involving auction rate securities. Plaintiffs in the suit allege brokers at Bank of America hid the true risks of auction rate securities when it sold the instruments to investors.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents.

Unfortunately, because of the crisis in the credit markets, auctions of these securities haven’t been successful because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction bonds would be downgraded. Bloomberg.com has also reported that brokers such as Goldman Sachs Group Inc. and Citigroup Inc. also purposely permitted the auctions for preferred securities, which aren’t insured, to fail by not committing their own capital to sales when there weren’t enough bidders. As a result, the market for auction rate bonds has pretty much vanished, leaving a lot of investors holding auction rate securities they once thought were safe vehicles with no way to sell them.

The investors involved in the Bank of America suit bought their auction rate securities between June 11, 2003 and Feb. 13, 2008. It was on Feb. 13 that all of the major broker-dealers, including Bank of America, withdrew their support for the auctions, leaving the market to crumble and investors unable to access their money.

Some legal experts have asserted that banks or brokers could be held liable for investors’ auction rate securities loses if the vehicles were represented as short-term investments or cash equivalents. The plaintiffs involved in the Bank of America auction rate securities class action lawsuit claim that brokers did just that.

The lawsuit alleges that Bank of America failed to disclose the following facts to investors:

The auction rate securities were not cash alternatives like money market funds but were instead complex long-term financial instruments with 30-year maturity dates.
The auction rate securities were only liquid at the time of the sale because Bank of America and other broker-dealers were artificially supporting and manipulating the market to maintain the appearance of liquidity and stability.
Bank of America and other broker-dealers routinely intervened in the auctions for their own benefit to set rates and to prevent all-hold auctions and failed auctions.
Bank of America continued to market auction rate securities as liquid investments even after Bank of America and other broker-dealers determined that they would likely be withdrawing support for the periodic auctions and that a freeze of the auction rate securities market would result.

The Bank of America auction rate securities lawsuit was filed the same day a group of state regulators visited Wachovia Securities St. Louis headquarters as part of a probe into its handling of auction rate securities. Morgan Stanley and Merrill Lynch also face investor lawsuits over the auction rate securities debacle, and Massachusetts’ securities regulator filed a civil fraud lawsuit last month against UBS AG, one of the largest players in the auction rate securities market. Finally, the Justice Department’s U.S. attorney’s office for New York’s Eastern District is conducting a criminal investigation into whether two former Credit Suisse Group brokers lied to investors about how they placed their money into auction rate securities.

Auction Rate Securities Fraud Investigators Visit Wachovia Headquarters

Thu, 17 Jul 2008 00:00:00 -0700

A group of state regulators probing the crash of the auction rate securities market visited the headquarters of Wachovia Securities in St. Louis today seeking to access documents and conduct interviews about the firm's sales and marketing practices, according to The Wall Street Journal. The group, which was led by official from Massachusetts, included state regulators from Missouri, Illinois, Massachusetts, New Jersey, Pennsylvania and other states. They were all members of the North American Securities Administrators Association, and are part of a task force looking into possible irregularities in the auction rate securities market.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents.

Unfortunately, because of the crisis in the credit markets, auctions of these securities haven’t been successful because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction bonds would be downgraded. Bloomberg.com has also reported that brokers such as Goldman Sachs Group Inc. and Citigroup Inc. also purposely permitted the auctions for preferred securities, which aren’t insured, to fail by not committing their own capital to sales when there weren’t enough bidders. As a result, the market for auction rate bonds has pretty much vanished, leaving a lot of small investors holding auction rate securities they once thought were safe vehicles with no way to sell them. Some legal experts have asserted that banks or brokers could be held liable for investors’ auction rate securities loses if the vehicles were represented as short-term investments or cash equivalents.

According to The Wall Street Journal, the Missouri Securities Division launched an investigation in April into Wachovia Securities and others requesting records and information about its sales of auction rate securities. But Wachovia has not complied with those request, prompting today's visit. The state's Securities Division is also conducting investigations into auction rate securities sales at Commerce Bank N.A. and Stifel, Nicolaus & Co. Inc. The division said it has received over 70 complaints from investors feel they were misled in their purchase of auction rate securities.

The fall-out of the auction rate securities crash has been far reaching. It has already spawned a number of investor lawsuits against investment banks, including Morgan Stanley and Merrill Lynch. According to The Wall Street Journal, Massachusetts' securities regulator filed a civil fraud lawsuit last month against UBS AG, which was one of the largest players in the auction rate securities market. The regulators allege the firm knowingly misled investors to buy auction rate securities knowing the market was disintegrating. Massachusetts regulators also accused UBS of books and records violations for stalling in making its business records available to regulators. The Justice Department's U.S. attorney's office for New York's Eastern District is conducting a criminal investigation into whether two former Credit Suisse Group brokers lied to investors about how they placed their money into auction rate securities.

Auction Rate Securities Crash Yields Lawsuits

Wed, 26 Mar 2008 00:00:00 -0700

Investors in auction rate securities have filed lawsuits against Morgan Stanley and Merrill Lynch, alleging those brokerages deceptively marketed the investment vehicles and took actions that made auction rate securities all-but-impossible to sell. Both lawsuits, filed in federal court in Manhattan, are seeking class action status.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents.

Unfortunately, because of the crisis in the credit markets, auctions of these securities haven’t been successful because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction bonds would be downgraded. Bloomberg.com has also reported that brokers such as Goldman Sachs Group Inc. and Citigroup Inc. also purposely permitted the auctions for preferred securities, which aren’t insured, to fail by not committing their own capital to sales when there weren’t enough bidders. As a result, the market for auction rate bonds has pretty much vanished, leaving a lot of small investors holding auction rate securities they once thought were safe vehicles with no way to sell them. Some legal experts have asserted that banks or brokers could be held liable for investors' auction rate securities loses if the vehicles were represented as short-term investments or cash equivalents.

According to Reuters, the auction rate securities lawsuits filed against Morgan Stanley and Merrill Lynch claim the brokers had artificially supported the auction rate securities market, causing their investments to become illiquid. They also claimed that the firms had recklessly misrepresented the risks of such investments.

Investor Gary Miller, who filed suit against Morgan Stanley, is seeking an injunction that would force the broker to rescind millions of dollars it executed in auction rate transactions from March 2003 through February 2008, and compensatory damages for himself and other investors in those securities. The other suit, filed against Merrill Lynch by Frederick Burton, alleges the company deceived the investing public and issued misleading information to clients in violation of the Exchange Act. He is also seeking compensatory damages.

Wed, 26 Mar 2008 00:00:00 -0700

Auction Rate Securities Fraud

The lawyers and attorneys at our firm are investigating possible legal claims against the sellers of auction rate securities. Auction rate securities were billed as safe, liquid, short-term investments by the firms that sold them. Despite assurances of liquidity, auctions of these securities have been cancelled recently, and many investors have complained that they are now unable to sell their auction rate securities. The auction rate securities lawyers at our firm are currently offering free case evaluations to people who suffered financial losses as a result of auction rate securities fraud.

Auction rate securities can be corporate bonds, municipal bonds or preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms during auctions. Generally, rates are reset every seven, 14, 28 or 35 days. In the past, auction rate securities have been popular with institutional investors due to their low financing costs and the fact that there are usually fewer parties involved in the financing process and no requirements for third-party bank support.

The first auction rate security was introduced in 1988. Today the market for auction rate securities has grown to over $200 billion dollars, with roughly half of it being composed of corporate issues. Because of their complexity and the minimum denomination of $25,000 or more, most holders of auction rate securities are institutional investors and high net individuals.

Mutual fund companies sold about $60 billion in auction rate securities to raise additional capital for their closed-end funds, which also have common shares traded on exchanges. In most cases, these auction rate securities were touted as safe investments that could be easily liquidated should an investor choose to do so. Our auction rate securities lawyers believe that the safety and liquidity of auction rate securities was oversold, and because the market for these securities has crashed, many investors in auction rate securities have suffered tremendous financial losses due to this deception.

Failure of Auction Rate Securities

According to a 2008 article in The New York Times, banks pitched these securities to corporations and wealthy individuals as safe alternatives to cash. Our auction rate securities lawyers have determined that this characterization is false, as auction rate securities are, in fact, long-term securities. It was only because the banks held weekly or monthly auctions to set the interest rates and give holders the option of selling the securities that investors were led to believe that auction rate securities were short-term investments. However, if the auctions fail or are cancelled, there is no way investors can sell their auction rate securities before they mature.

Failures of such auctions used to be rare, but with the turmoil in the credit markets, they have become more commonplace. In some cases, auctions of these securities have been cancelled due to lack of bidders, leaving bewildered investors with auction rate securities they are unable to sell.

In the early months of 2008, thousands of auctions of these securities failed because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction rate securities would be downgraded. An already bad situation was made worse when brokers also purposely permitted the auctions for auction rate securities to fail by not committing their own capital to sales when there weren’t enough bidders.

Investors holding auction rate securities won’t be seeing such a rescue anytime soon. The banks that sold these securities have only offered loans to investors who need the funds they have tied up in auction rate securities they cannot sell. The auction rate securities lawyers at our firm find this situation unacceptable, as investor purchases of auction rate securities were often based on false assurances that the securities could easily be resold.

Auction Rate Securities Investigations

The 2008 auction failures are not the first time auction rate securities have caused concerns. According to The New York Times, in 2006, the Securities and Exchange Commission (SEC) reached a $13 million settlement with 15 investment banks, and the industry agreed to impose a voluntary code of conduct for the auction-rate market. The SEC investigation centered on how bidding was conducted for these securities. Critics complain that investment banks have the upper hand in bidding because they can bid after seeing what other investors have bid.

Now, the sellers of auction rate securities are going to have to face more investigations. In February 2008, the Massachusetts Secretary of State asked nine fund companies for information about failed auctions that left investors unable to sell their auction rate securities. Around the same time, the Ohio Attorney General said his office may file lawsuits after state funds bought the securities. The auction rate securities fraud lawyers at our firm have also done extensive investigation in this area, and will soon be filing lawsuits against the firms that sold auction rate securities with false assurances.

Legal Help for Auction Rate Securities Victims.

Our auction rate securities fraud lawyers believe that holders of these investments may have several valid legal claims against the sellers of these investments. For example, some investors unable to sell auction rate securities may have been misled into investing in long-term securities when their intention was to buy shorter-term debt. In addition, if auction preferred shares were sold by brokers as cash equivalents, the banks may be held responsible for losses and clients’ inability to get their money out

If you are a victim of auction rate securities fraud, you may have valuable legal rights. However, there are definite time limits in which investors must file claims for securities fraud. Please fill out our online form or contact us at 1-800-LAW-INFO (1-800-529-4636) to speak with one of our experienced auction rate securities fraud lawyers.