Austin Auction Rate Securities
Bowing to economic pressures, a number of major auction rate securities (ARS) broker-dealers withdrew their funds from the market in February 2008, amid concerns about the credit reliability of the bond insurers backing ARS auctions. The results were catastrophic; hundreds of ARS auctions failed within weeks – over 10 times as many as had failed over the past 30 years combined. As auction after auction failed to determine the critical clearing rate, investors discovered that their funds were essentially locked up in unsellable Austin auction rate securities bonds and stocks.
Investor frustration became anger as efforts to regain their money were met with unhelpful, stonewalling responses from broker-dealers and investments firms, who continued to rake in enormous profits simply by running more auctions with no chance of success. Making the matter worse was a general consensus that investment firms had failed to adequately warn their clients of the potential risks involved in Austin auction rate securities, and had instead engaged in misleading, fraudulent advertising practices in order to sell more bonds.
The Illusion of Liquidity in Austin Auction Rate Securities
In finance, liquidity is a measurement of how well a particular asset can be converted into cash. In other words, a highly liquid asset is defined as one which:
- Can be sold quickly,
- Can be sold at virtually any time, and
- Can change hands with little or no loss of value.
Recognizing how attractive liquidity was to investors, Austin auction rate securities firms touted ARS stocks and bonds as safe assets which were liquid enough to be virtually cash-equivalent. Unfortunately for consumers, such liquidity was based on the ability of the ARS market to hold successful auctions every 7, 28, or 35 days. When auctions began to fail, the illusion of liquidity misrepresented by investment firms disappeared, leaving investors holding bonds with maturity periods best measured in decades.
Austin ARS Redemptions and Buybacks – A Limited Response
Though a few broker-dealers and investment firms have offered to buy back what appear to be large amount of their outstanding auction rate securities stocks and bonds, such offers actually cover only a tiny fraction of the $300 billion ARS market. These buybacks are also often conducted at a discount in order to save the investment firms money at the cost of the consumer.
The incentives for broker-dealers and major investment firms to redeem the crumbling ARS market is limited. Not only are they loath to allocate funds for such efforts in an unfavorable economy, but they suffer few ill effects from the market collapse. In fact, these companies continue to rake in millions of dollars by collecting fees for running failed auction after failed auction.
Options for Austin Auction Rate Securities Bondholders
If you invested your hard-earned money in the Austin auction rate securities market at the advice of an investment firm or broker, odds are that your funds are now frozen and inaccessible, locked into long-term bonds which you are unable to sell. What can you do?
Many investors are seeking justice in the legal system. A number of lawsuits seeking to hold investment firms responsible for their deceptive business practices are already in the works. To learn more about how you may be able to make a case against your fraudulent investment firm, contact an auction rate securities fraud lawyer today by calling 800.220.9341.