Auction Rate Securities Lawsuit

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There are a variety of crimes related to investments and securities and auction rate securities fraud is one of the most damaging in the industry.

An auction rate security (ARS) is a preferred equity security or debt instrument, such as a bond, that has a long-term nominal maturity of two to three decades, for which the interest rate resets on a regular basis through an auction. Auctions typically occur every 7, 14, 28, or 35 days.

Auction rate securities first became popular in the 1980s and were used by public and municipal authorities, student loan providers, and institutional borrowers for investors seeking a cash equivalent investment with higher yield than money market mutual funds or CDs.

The benefits of auction rate securities supposedly included:

  • Higher yield
  • Keeping money accessible because it was fairly liquid
  • Less risk than other investment products

Though these benefits might have been present in the early days of auction rate securities, they eventually proved to be fleeting.

Problems began for auction rate securities around the time the financial market spun into turmoil because the auctions were attracting too few bidders. The market eventually collapsed in early 2008, which led to investors having illiquid investments with long-term maturity dates.

Since the market collapse, the SEC, FINRA, and state attorneys general have been settling with brokers and other entities involved in the market. The settlements include a buy-back of auction rate securities from some investors or the conversion of these investments to other types of securities.

Why Might You Need an Auction Rate Securities Lawyer?

Investors are sometimes lured in by promises of an investment being “completely liquid” or “just like cash” because it removes the risk of having money tied up when it’s needed. In theory, an investment such as this would provide an opportunity for your money to grow without having to limit your access to it.

Unfortunately, despite promises made by brokers, this liquidity is often not the case.

In the case of auction rate securities, many investors were left high and dry, and in fact, had no access to their funds. The fine print in many cases explained that these types of investments were not “as good as cash,” but brokers still made the claim, misleading investors. There have also been instances in which investors working with auction rate securities claim to never have been given a prospectus.

Many of the investors duped by auction rates securities have turned to the court system to help them get their money back – something an auction rate securities attorney can help you accomplish.

Auction rate securities lack the security built into other investments, such as money market funds or regular bank savings accounts. There is no guarantee that investors can access their money when they want to and making matters worse, banks have no obligation to buy the bonds linked to auction rate securities.

Many who invested in auction rate securities now have frozen funds that have diminished in value. Most of them will never see the full amount of their investment returned to them without taking legal action. There are some financial institutions that reimbursed investors in good faith and to keep the matter out of court, but there are far more who hung investors out to dry.

If you were duped by an auction rate securities investment, an attorney might be able to help you recover what you’ve lost. If the broker with whom you worked failed to explain the limitations of an auction rate securities investment to you or information was withheld from you concerning the investment in general, you were a victim of securities fraud.

Investment products, including auction rate securities, must be accompanied by a prospectus that details the limitations of the product and in many cases, those who invested in these types of securities did not receive proper documentation.

Why Should I Contact an Auction Rate Securities Attorney?

There is always some risk involved when investing, but when that risk is heightened because a broker failed to do his or her job, investors have a right to take action.

An auction rate securities attorney might help you determine if you have a case. Any time a broker, brokerage firm, or any other investment professional fails to adequately inform you or makes an investment recommendation without understanding your risk tolerance or investment objectives, that entity can be held liable for your losses.

If you were encouraged to invest in auction rate securities and you are unable to access your funds or you have lost funds because of the investment, contact us to schedule a consultation.


Since its establishment in 1999, Seeger Weiss has led some of the most complex and high-profile litigations in the U.S.