San Jose Auction Rate Securities

Thousands of San Jose investors have been affected by the collapse of the auction rate securities (ARS) market after broker-dealers withdrew their funds in February 2008. Despite the promises of safety and liquidity that they had received from investment firms, ARS bondholders discovered that their funds were all but frozen, locked into illiquid holdings which were virtually impossible to sell without incurring substantial losses.

Months later, the $300 billion auction rate securities market remains in limbo, chafing both investors and borrowers as auctions continue to fail at record rates. If you are a San Jose investors with a stake in the once-popular ARS market, you have most likely discovered that the money you thought was invested in good-as-cash ARS stocks and bonds is now tied up in inaccessible long-term financial commitments that you never intended to buy.

Deceptive ARS Investment Firm Practices

In years past, when broker-dealers and investment firms were eager to profit from the successful San Jose auction rate securities market, they recruited investors by assuring them that auction rate stocks and bonds were as safe as cash. According to the promises made by investment firms, bondholders could make more profit in auction rate securities than in other money market instruments, despite being able to exit the highly liquid market at any time.

Investment firms failed to mention to their customers, however, that any liquidity that San Jose auction rate securities possessed was only a product of the system itself. At their core, auction rate securities were actually long-term bonds which could be bought and sold at the same periodic auctions that determined their interest rates. While the San Jose ARS market system thrived and auctions took place frequently and smoothly, a temporary liquidity was achieved. What investment firms knew but failed to disclose, was that, should the market ever sour (the situation under which investors would most likely want to pull out their funds), the liquidity of ARS stocks and bonds would disappear.

Then, in February 2008, such a crisis did indeed come to pass. Broker-dealers, worried about the declining credit ratings of ARS bond insurers, decided to pull their bid support from the market. Without these bidders of last resort, ARS auctions suddenly began to fail at alarming rates. When investors tried to exit the market, however, they discovered that the only way to do so was by participating in a successful auction – all but impossible in their current situation.

Responding to the San Jose Auction Rate Securities Crash

In the wake of the San Jose ARS market crash, investment firms became suddenly and conspicuously ignorant of the promises they had once made to customers. Investors looking for help to pull out of the auction rate securities market were told that it was ‘not in their best interests' to do so, that they had voluntarily accepted the risk of investing in auction rate securities, and subsequently denied access to their money.

If you are a San Jose auction rate securities investor, you may have a case against the investment firms whose misleading advice and promises convinced you to buy into the ARS market. Call an auction rate securities attorney at 800.220.9341 today for more information.