Florida Auction Rate Securities
The collapse of the auction rate securities (ARS) market in Florida means that thousands of investors have been left stranded, unable to, sell, collect on, or otherwise convert the investments that they legally own. The frozen market, paralyzed by an inability to hold successful ARS auctions, has in turn essentially frozen the bonds and stocks purchased by auction rate securities bondholders.
Florida auction rate securities investors have little to look forward to. Even experienced analysts can only guess as to when the ARS market will recover. The economic downturn playing out in the background only complicates matters.
Causes of the Florida Auction Rate Securities Crisis
The fallout from the ARS market collapse is, in many ways, akin to the credit crunch and mortgage crises of recent years. In fact, the troubles of auction rate securities investors may be a side effect of these economic shocks. As ARS broker-dealers watched the economy crumble, they became increasingly wary of spending their resources. In particular, broker-dealers feared for the credit ratings of insurers backing ARS auctions.
In 2008, several major broker-dealers made the decision to pull out of the auction rate securities market, declining to take the role of last-resort bidder that they had historically filled. The effects were immediate -- without bids from broker-dealers to fill the gap and establish the clearing rate, ARS auctions began failing at an incredibly high rate. More auctions failed in a few weeks in February than had failed in the last 20 years combined.
Investors quickly realized that these failed auctions had another effect -- without successful auctions, they could no longer carry out the transactions which made auction rate securities liquid, attractive investments. In just a few short weeks, Florida auction rate securities became virtually unsellable, locking investors' funds in investments they no longer wanted.
Florida ARS Fraud
Although the ARS market disintegration came as a result of outside market forces, the losses and problems of individual investors may be traced back to another source -- investment firms. While the ARS market was thriving, several major investment firms vigorously advised clients to purchase Florida auction rate securities. Such an investment was advertised as liquid, short-term, and virtually risk-free, with a higher post-tax yield than money market options. In the wake of the market collapse, investors in Florida and around the country realized that these claims were not entirely true.
A number of investigations and lawsuits have sought to hold investment firms responsible for misrepresenting the benefits of auction rate securities for profit purposes. According to these initiatives, investment firms exaggerated the safety and liquidity of ARS bonds and stocks. They failed to advise clients that, should the market collapse, auction rate securities would lose their short-term flexibility and become inaccessible, unsellable, and illiquid.
If you are one of the many Florida investors who have been deceived by investment firms into entering the auction rate securities market, legal action may be your best recourse for recovery. If you live in:
Contact an
auction rate securities lawyer for more information about your options. Call 800.220.9341 today to learn more.