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Auction Rate Securities Fraud

Auction Rate Securities Fraud Lawsuits

Auction Rate Securities Fraud | Lawsuits, Lawyers | Investors: False Assurances, Financial Losses | Policy Holders

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

Legal Help For Victims Affected By Auction Rate Securities Fraud

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-YOURLAWYER (1-800-968-7529) to speak with one of our experienced auction rate securities fraud lawyers.


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Citigroup Reaches Auction Rate Securities Settlement with Pennsylvania

Jul 15, 2009 | Parker Waichman LLP
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...

Oppenheimer Faces Auction Rate Securities Lawsuit

Nov 20, 2008 | Parker Waichman LLP
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...

Fidelity Offers Auction Rate Securities Buy Back

Sep 16, 2008 | Parker Waichman LLP
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...

Bank of America Strikes Deal to Buy Back Auction Rate Securities

Sep 10, 2008 | Parker Waichman LLP
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...

Auction Rate Securities Probe Focusing on Fidelity, Goldman Sachs Ties

Aug 27, 2008 | Parker Waichman LLP
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. Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the...

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