Auction Rate Securities
Illiquidity: the Problem With Auction Rate Stock
Over 35 years of Experience ◊ New York Lawyer ◊ Practicing Nationwide
Auction rate securities are issued as bonds and preferred stock and are designed to serve as money market-type instruments. They aren’t traded on a stock exchange, but at periodic auctions. For years, they had been marketed by brokerage firms as investments where the principal was never at risk. However, in early 2008, the auctions failed and investors nationwide found themselves unable to sell billions and billions of dollars worth of these securities. Our firm was the first in the nation to successfully bring one of the most well-known firms to arbitration, securing millions of dollars of recovery for our clients.
In many cases, this represents a breach of fiduciary duty on the broker’s part. Brokers should have understood the risks inherent in auction rate securities (i.e., that the auction can fail). They are obligated to make those risks known to their clients.
If you’re an investor with funds locked away in an auction rate securities, or if you are a broker facing accusations of misconduct, find an attorney you can trust. David E. Robbins has over 35 years of experience and is recognized nationally as a leading authority on securities disputes.
Mr. Robbins is also the author of Securities Arbitration Procedure Manual (the textbook used daily by law schools, law firms and brokerage firms) as well as many scholarly articles.
What Does It Mean When an Auction “Fails”?
Simply put, you can’t sell (liquidate) the security because no one wants to purchase it at an auction.
What is your remedy?
To bring an arbitration claim and ask the arbitrators to order the brokerage firm to rescind the purchase, to take it in the firm’s inventory and pay you back what you paid in the first place. We have been successful in such cases and could be for you.