Auction Rate Securities Fraud Lawyers

Auction rate securities fraud is increasing at an alarming rate and is one of the largest securities frauds perpetuated upon investors. Shustak Frost & Partners, P.C. is a law firm specializing in securities fraud representing investors mislead or defrauded by their banks or brokerage firms. The firm is now accepting cases involving Auction Rate Securities fraud. The firm has knowledgeable and aggressive California and New York securities fraud lawyers experienced in auction rate securities fraud and the process by which investors can recover their losses. Typically, these highly risk securities were sold to unsuspecting investors seeking safety of principal and liquidity.

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. Brokerage firms earn very little fees by selling truly safe securities such as U.S. treasuries or quality municipal bonds, while they earn extremely high fees and commissions from packaging and selling these toxic auction rate securities to unsuspecting investors. More than $330 billion of these risky and often unsuitable securities were issued and are now held by investors whose money now is frozen.

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. In fact, all of the firms that sold these risky securities have turned their backs on the clients and refuse to support the market or buy back the auction rate securities, leaving many investors who only wanted safety and short term liquidity stranded, their money tied up and frozen.

Quite often investors were not provided prospectuses which spelled out the inherent risks of the auction rate securities and typically the brokers recommending and selling the securities neither disclosed the true risks nor even understand these highly complex, hybrid investments. Many of the securities were issued by municipalities and public authorities and investors were mislead into believing that what they were buying were municipal bonds which was not the case. Many of these auction rate securities either have stopped paying interest or the penalty rate, set by a failed auction, have dropped considerably as they are tied to falling benchmark rates.

Many of the firms which sold these securities to unsuspecting investors have already been in trouble with the SEC and regulators over how these very same securities were marketed, yet they continued to sell them to innocent investors. 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.

According to Erwin Shustak, Shustak Frost & Partners managing partner, 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.

Shustak Frost & Partners, P.C., with offices in San Diego, California and Park Avenue in New York City, specializes in securities law and investor fraud and offers no obligation consultations to investors who believe they have been the victims of auction rate securities fraud. For more information, contact either Erwin Shustak, managing partner, Shustak@shufirm.com, 888.748.8748 ext. 109, or Thomas Frost, tfrost@shufirm.com, 888.748.8748, ext. 116 for more information about your situation and how our firm can help you.