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Frequently Asked Questions

Auction Rate Securities Investors are Seeking Answers

What are Auction Rate Securities?

Auction Rate Securities (ARS) are typically corporate bonds, municipal bonds or preferred stock that frequently reset their interest rates through a dutch auction. Auction Rate Securities are unlike traditional bonds that are issued with a fixed interest rate for the life of the bond or preferred stock that specifies the dividend rate for the life of the shares. Auction rate securities are commonly issued by municipalities, to fund projects like hospitals and museums, and corporations.

What does "failed auction"?

Auctions for most Auction Rate Securities typically take place every 7, 28, or 35 days. However, the recent crisis in the credit markets has caused investors and institutions to stop purchasing these securities when they are up for auction. When these securities fail to sell through it is call a "failed auction".

Why are my funds frozen?

In February, 2008, auctions for Auction Rate Securities began to fail as investors and market makers declined to bid on offered securities. Previously, when investors failed to purchase Auction Rate Securities the market makers, which were Citigroup, Merrill Lynch, UBS, and Morgan Stanley, stepped in and purchased the securities. When these institutions failed to purchase these securities as a last resort they became illiquid. As a result, investors were not able to liquidate their positions in Auction Rate Securities and were unable to access their funds.

When will I be able to sell my position in Auction Rate Securities?

It is unknown if or when the market to sell Auction Rate Securities will reemerge. The investment banks and brokerage houses that previously made a market in these securities have all stopped supporting these auctions. Auction Rate Securities investors might be able to sell their securities in the second market to a third party, but this might come at a significant loss.

I need to access my capital, what are my options?

Unfortunately, the Financial Industry Regulatory Authority FINRA and the SEC are not putting pressure on investment banks and brokerages to purchase these illiquid securities from their clients. Instead, FINRA recently issued an alert to investors notifying them of their options, which are: selling the securities in the second market to a third party (usually for a significant discount), borrowing against these securities on margain, liquidating other investments, or continuing to hold the securities.

Do I have legal rights?

Investment banks and brokerage houses misled investors about the safety of Auction Rate Securities.  If you invested money in these securities and you are unable to sell them, you may have valuable legal rights. Mark & Associates, P.C. and Levin Papantonio Thomas Mitchell Echsner Proctor, PA have joined forces to aggressively represent investors who have lost access to their funds. To request a free legal consultation please complete the inquiry form on this page or call 1-866-50-RIGHTS (1-866-507-4448).