According to Shustak Frost & Partners, P.C., Trouble in Auction Rate Securities Launches Lawyers into Action

Share Article

Investors who purchased auction rate securities were met with shock when they tried to cash in on their investments and were declined access recently. While banks and brokerage firms pitched these auction rate securities to investors as short term, ultra safe cash alternatives, the securities are, in fact, long term bonds with interest rates set at weekly "auctions" held by the same firms that packaged and sold the securities to begin with.

even though the banks and brokerage firms knew the value of the securities had dropped and the market for the auction rate securities had dried up months ago, they continued to value the securities on customer statements at cost, rather than marking them to market, a further deception and fraud on their customers.

Investors who purchased auction rate securities were met with shock when they tried to cash in on their investments and were declined access recently. While banks and brokerage firms pitched these auction rate securities to investors as short term, ultra safe cash alternatives, the securities are, in fact, long term bonds with interest rates set at weekly "auctions" held by the same firms that packaged and sold the securities to begin with. With the meltdown in the credit markets, the demand for these auction rate securities dried up starting in January and February, 2008, leaving investors locked into securities that have declined in value and cannot be sold. Many investors were defrauded when the banks and brokerage firms assured them that the auctions could not fail since the firms would step in and support the market. Many law firms like Shustak Frost & Partners are rallying for clients both new and old who have been victimized by these investment brokers. According to Erwin Shustak, of Shustak Frost & Partners, not only were unsuspecting investors defrauded and mislead as to the true risks of these securities, but the auction rate securities were carried on the customers' monthly statements as "cash or cash equivalents" which they were not. In addition, says Shustak, "even though the banks and brokerage firms knew the value of the securities had dropped and the market for the auction rate securities had dried up months ago, they continued to value the securities on customer statements at cost, rather than marking them to market, a further deception and fraud on their customers."

Virtually all major brokerage firms, including UBS, Lehman Brothers, JP Morgan, Goldman Sachs, Morgan Stanley and others inappropriately marketed these securities to unsuspecting clients, misrepresenting them as safe and secure alternatives to cash or treasuries. Many investors were sold these securities without an understanding or explanation of the very substantial risks inherent in auction rate securities. More than $330 billion of these risky and unsuitable securities were issued and are now held by investors whose money now is frozen.

The Securities and Exchange Commission, FINRA (Financial Industry Regulatory Authority), and the attorney generals of several states including New York have recently initiated new investigations of eighteen major banks' and securities firms' practices in connection with their marketing of these auction rate securities. Among the firms that have been subpoenaed are UBS, Citigroup, Merrill Lynch, Lehman Brothers, Bear Stearns, and Goldman Sachs.

Many of the firms which sold these securities to unsuspecting investors have already been in trouble with the SEC law firms like Shustak Frost & Partners who helped many of their clients through those trying times as well and in 2006, the Securities and Exchange Commission reached a $13 million settlement with 15 investment banks over complaints in how the bidding on these auction rate securities was handled. That small slap on the wrist, however, did nothing to protect investors to whom the very same firms continued to sell these risky, inappropriate auction rate securities without full disclosure of the nature of the risks inherent in the investment.

About Shustak Frost & Partners, P.C.

Shustak Frost & Partners, P.C. is a leading securities and investor frauds law firm with offices in California and New York. Our knowledgeable and aggressive securities fraud lawyers are experienced in auction rate securities fraud and the process by which investors can recover their losses.

###

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Erwin Shustak
Visit website