Houston Auction Rate Securities

When the auction rate securities (ARS) market collapsed, dozens of Houston investors discovered that the funds they invested in the ARS market were basically frozen in place. Buyers and investors, reacting to the catastrophically high rate of auction failures in early 2008, declined to bid in subsequent auctions, causing even more to crash. Unable to find buyers for their shares, existing ARS bondholders were left with illiquid stocks and bonds which, though still generating interest revenue, prevented them from doing what they wanted with their own money.

The Chain Reaction of the Auction Rate Securities Market Collapse

In response to the subprime loan and credit crunch crises which undercut the financial industry in recent years, a number of major auction rate securities broker-dealers decided that they could no longer spare the funds to act as bidders of last resort in their own auctions, and pulled out of the ARS market. Without this financial safety net, hundreds of ARS auctions failed in a matter of weeks.

Investors, realizing that Houston auction rate securities were no longer the liquid, short-term investments they had been eager to buy, also began to leave the ARS market, declining to bid in even more auctions, causing more failures through lack of bids. At the same time, many Houston ARS bondholders tried desperately to cash in their shares and stocks and get their money out, contributing to the overload of shares for sale and further exacerbating the problem.

Why Broker-Dealers Aren't Fixing the Problem

Almost immediately after the extent of the Houston auction rate securities crisis became apparent, investors began to call for broker-dealers to remedy the problem – either by ensuring auction success once again or by compensating investors for their lost liquidity. The response, to put it mildly, was unhelpful. Stonewalling tactics and financial double-talk carried the day as banks and other broker-dealers blamed their own customers for investing in a risky market.

The sad truth is that there is little incentive for broker-dealers to do anything about the auction rate securities problem. Why? Simply put, these corporations are still making millions by running failed auction after failed auction and collecting on the sale arrangement fees. Furthermore, by offering to convert the stagnant securities for an extra fee, banks stand to gain even more from the suffering of their customers.

Impact of Houston Auction Rate Securities – What You Can Do

The city of Houston was one of many municipalities who sold billions of dollars in auction-rate securities and bonds through major banks and broker-dealers. After the market collapsed, Houston has seen its borrowing costs skyrocket, as interest fees shot upwards in response to the crisis. Instead of offering relief and making amends for their mistakes, firms like JPMorgan and UBS AG did little but stand by, watch, and search for more profitable opportunities.

But not all investors are satisfied with waiting out the crisis. Instead of feeling helpless, many individuals and organizations have taken legal action against the broker-dealers and investment firms whose deceptive and fraudulent actions ensnared countless investors into the dangerous Houston auction rate securities market, using promises of liquidity and safety as draws.

If you have been victimized by the deceptive practices of an investment firms or broker-dealer, contact a Houston auction rate securities fraud lawyer at 800.220.9341 today.