AUCTION RATE SECURITIES

One of the most recent forms of investment fraud has been in auction rate securities (ARS).  Financial institutions sold these investments to individuals as being highly liquid and stable equivalents to cash; however, because of the liquidity stresses these same financial institutions are experiencing, the auction markets (which determine the price/interest rates on the ARS) have been failing.

As a result, individual investors have been saddled with investments that, at least for the short-term, are worthless.  Some financial institutions have even started to significantly discount the value shown on account statements for the ARS in clients' portfolios.  Investors are learning the hard way that these investments are neither as liquid as cash nor as stable as cash.

Various acronyms for Auction Rate Securities have been used.  For example, while "ARS" is a general acronym for Auction Rate Securities, similar securities issued by municipalities are also known as "MARS", and those that issued by originators of student loans are also known as "SLARS".  Some closed-end mutual funds have also issued "ARPS" (Auction Rate Preferred Securities).

The Nygaard Law Firm has settled several auction rate securities cases against E*TRADE, Raymond James, Commerce Bank, and UBS.  Our clients have been compensated in the total amount of their purchases of ARS and ARPS and attorneys' fees.  We also have pending arbitrations involving consequential damages due to the failure of the ARS market, which ruined clients' businesses because they could not access their "safe, liquid" cash.

The following articles discuss some of the issues related to Auction Rate Securities:

Stephen Taub, Another Firm Gets Tangled in ARS Web, CFO.com (May 28, 2008)

Julia Browne, A Ray of Hope in Auction Rate Securities - An Interview with Diane Nygaard, LawyersandSettlements.com (May 10, 2008).

Michael B. Marois and Jeremy R. Cooke, Auction-Bond Flops Stick Student-Loan Holders with 0%, Bloomberg.com (April 25, 2008).

Paul Wenske, Use Caution with Auction Rate Certificates, The Kansas City Star (April 26, 2008).

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