Auction Rate Securities Fraud Lawyer

What to do if your ARS Investment is Suddenly Illiquid

Since February, many auction rate securities (ARS) investors have felt cheated by the financial system. It was during this time that large banking companies decided to discontinue the support of regular ARS auctions due to the credit crunch. The auctions simply failed and ARS weren’t selling at acceptable prices. As a result, many investors found themselves stuck.

Many of the large banks were advertising auction-rate securities as very safe, stable, highly-liquid investments that yielded a much higher return than more traditional money market accounts and CD accounts. In actuality, these investments were long-term debt instruments, often with 30-year maturation cycles.

Numerous lawsuits have popped up from these scandals, and people feel as though they have been victims of fraud. ARS accounts suddenly became illiquid after support for the auctions was pulled. The process has been different with each bank, but thousands of customers are waiting to see if the banks will return the money.

Options for Investors

The Financial Industry Regulatory Authority (FINRA) has a few recommendations for individuals who have become a victim of fraud. Ultimately, for people who really need their money, the situation addresses an issue of cash flow.

FINRA first suggests that one should look at his offering documents and read them very closely. In some cases, provisions are made in the event that the market fails. Some bond issuers reserve the right to convert ARS accounts into fixed or variable interest accounts.

If this is not an option, investors may be able to sell their accounts in the secondary market. This is a bit more risky as fair market value is harder to determine, which could mean that the account is undervalued in the secondary markets.

Margin borrowing is another option. Many of the banks who fraudulently misrepresented auction-rate security investments offer to loan money on the value of your ARS investment. Customers can sometimes be caught off-guard by the interest charges on these accounts.

If you would like representation regarding your auction rate securities account, it may be beneficial to contact an attorney about your case. For more information, call the auction-rate securities lawyers of the Williams Kherkher law firm at 800.220.9341.