Dallas Auction Rate Securities

Auction rate securities (ARS) in Dallas are stagnating as the market continues to crumble under the weight of economic pressures. Countless Dallas investors, both individuals and corporations alike, are suffering from an inability to retrieve their investment funds from the securities, stocks, and bonds that were once advertised as almost entirely safe and liquid. Only now are many realizing that they may have been misled by the promises of investment firms into entering a market which they knew very little about.

Background of Dallas Auction Rate Securities

The foundations of the $300 billion ARS market were laid in the late 1980s by Goldman Sachs. Auction rate securities were designed as long-term municipal or corporate bonds or preferred stock with extremely long maturity periods (often several decades in length), but which could be bought and sold at varying interest rates in short, regular intervals, most commonly 7, 28, or 35 days.

ARS auctions are held according to a Dutch auction system. Buyers enter bids to buy available shares, specifying the lowest interest rate they will accept on their purchase. The lowest interest rate at which all bonds available at auction can be sold, known as the clearing rate, becomes the active interest rate for the next period.

Because Dallas auction rate securities could be bought and sold at auction in such short, predictable intervals, they became highly popular with investors seeking to take advantage of the supposedly safe and liquid market. Investment firms and major broker-dealers were only too happy to oblige, as they stood to gain millions from auction fees alone.

ARS Market Collapse – Effects on Dallas Investors

During the three decades in which auction rate securities have existed, broker-dealers have generally acted as safety nets for their own auctions, bidding on their own "wares" in order to ensure that a clearing rate could be successfully determined. This practice was both common and effective; less than four dozen ARS auctions failed in those three decades.

In February 2008, broker-dealers abruptly pulled out of the Dallas ARS market due to concerns about the credit ratings of auction rate securities bond insurers. Without the safety net bids that investors had come to rely on, several hundred auctions failed within the first two weeks alone.

The repercussions were more serious than many investors expected. Lured into the Dallas auction rate securities market by promises of safety and liquidity from their investment firms, individuals, corporations, and even local governments discovered that the vaunted liquidity of auction rate securities was an illusion sustained only by the life of the market itself. The collapse of auction sales meant that bondholders became unable to recover their own funds; the illusion of liquidity evaporated.

Resources and Legal Representation for Dallas ARS Investors

If you are an investor whose funds have been frozen by the recent Dallas auction rate securities market collapse, you may have more options than you think. Though no one can predict when the market will recover out of limbo, you may be able to take appropriate legal action against the investment firms and broker-dealers who deceptively drew you into buying ARS bonds and stocks in the first place, and who continue to make millions while you and your fellow investors suffer.

To learn more about what you can do, contact an auction rate securities fraud lawyer at 800.220.9341 today.