West Palm Beach Auction Rate Securities

For years, investment firms marketed West Palm Beach auction rate securities (ARS) to their clients as safe, liquid, cash-equivalent investments with an attractive rate of return. By 2008, the auction rate securities market had swelled to well over $300 billion, and both individual and corporate investors had poured their funds into what they thought were safe ARS stocks and bonds. In February, the market collapsed. Following the pull-out of broker-dealers from the auction rate market, a staggering percentage of auctions failed, locking up the entire market and trapping West Palm Beach, FL investors’ funds in now-illiquid bonds.

Liquidity and West Palm Beach ARS

Liquidity in finance is defined as the ability of an asset to be converted into cash (i.e., sold). A highly liquid asset is one that could be converted quickly, at virtually any time, and with little to no loss in value. The main benefit of a liquid investment is flexibility. An investor with liquid holdings would have the ability to enter or exit the market at any time, depending on market trends or his own financial needs.

Liquidity was one of the main reasons investors were attracted to the West Palm Beach auction rate securities market. Lulled by the promises of investment firms, many investors put their hard-earned funds into ARS stocks and bonds with the expectation that they could convert their investments at any time.

Unfortunately, the liquidity of the West Palm Beach auction rate securities market was only an artificial product of the ARS system. Liquidity only existed as long as auctions continued to succeed and the market was supplied with new bids to purchase auction rate holdings. This arrangement fell apart in February 2008, when broker-dealers, who had acted as bidders of last resort for two decades, suddenly withdrew from the ARS market. Lacking bids, thousands of auctions failed within weeks, reducing West Palm Beach auction rate securities to illiquid, long-term bonds. Without a secondary market, investors were trapped and unable to access the money they had invested.

West Palm Beach Auction Rate Fraud

In the aftermath of the West Palm Beach ARS market crash, investors found themselves stonewalled by banks and broker-dealers who denied them access to their own funds, even when investors had found third-party buyers willing to purchase the frozen auction rate securities at a discount. Despite their promises of safety and liquidity, investment firms and banks attempted to push responsibility investors’ losses onto the investors themselves, claiming that their clients understood risks of which they had never been informed.

Even more shocking were documents which suggested that large financial institutions such as UBS had known about the impending auction rate crisis and warned some important clients, but continued to aggressively market the doomed auction rate securities to others.

Have you been deceived by the actions taken and promises made by greedy investment firms who are now unwilling to stand by their words? Call 800-220-9341 today and speak with an auction rate securities fraud attorney to learn more about your options.