Fort Worth Auction Rate Securities

February 2008 – as major broker-dealers pulled their funds from the auction rate securities (ARS) market and refused to bid in their own auctions amid concerns about the credit reliability of bond insurers, thousands of auction rate securities investors in Fort Worth and elsewhere discovered that, without successful auctions, their ARS holdings were no longer liquid, but had reverted to little more than long-term bonds with no sell option. In the subsequent weeks and months, the Fort Worth auction rate securities market would all but freeze, as record numbers of auctions failed, suffocated by an overload of sell orders, without enough buyers to cover them.

Why the Fort Worth Auction Rate Securities Market Failed

Auction rate securities, designed in the mid- to late-1980s, combine a long-term municipal or corporate bond with an interest rate which fluctuates in 7-, 28-, or 35-day periods based on bids submitted at Dutch-system auctions. At these auctions, bondholders had the opportunity to sell their holdings to new investors. The new interest rate was reset to the clearing rate – the lowest rate at which all available shares could be sold.

Because such auctions took place in short intervals, investors were given the impression of liquidity; that is, they were assured by investment firms and broker-dealers that an investment in the Fort Worth ARS market was as safe as cash, and that they would be able to get their money out at any time.

Few investors realized that this liquidity and safety was little more than an illusion propped up by the broker-dealers themselves. By bidding to ensure the success of the auctions they hosted, broker-dealers essentially created the very liquidity they were marketing to investors. But, as with any illusion, the Fort Worth auction rate securities market was doomed to collapse. When broker-dealers abruptly pulled out of the market in February, auctions could no longer reach a valid clearing rate, thus rendering buying and selling of ARS stocks and bonds to be all but impossible. Too late, Fort Worth investors realized the truth that their investment firms had failed to tell them – without the ability to hold successful auctions, the auction rate securities market would lose virtually all its liquidity, leaving investors with long-term bonds they often did not want.

Fort Worth Auction Rate Securities Fraud

According to major financial corporations, investors are solely responsible for their losses in the Ft. Worth auction rate securities market. They would like investors to believe that, as major corporations, they had no liable hand in creating the crisis from which they continue to make millions.

What investment firms are attempting to downplay is the fact that their auction rate securities advertising and marketing campaigns were overaggressive operations which deceived investors with promises of safe, liquid investments and sold them ARS stocks and bonds even when such a purchase would actually clash with the client's investment goals. Investment firms call it acceptable risk; others more straightforwardly call it fraud.

Thousands of investors like you have been hurt by the Fort Worth auction rate securities market collapse. Of those, many are refusing to be helpless victims of insensitive financial corporations and institutions – they are taking legal action to protect their own rights and interests. To learn about how you can fight against the investment firms who gave you misleading advice for their own profit, contact an auction rate securities lawyer today by calling 800.220.9341.