Since the collapse of the auction rate securities market in February 2008, many of the broker-dealers who sold those securities have made arrangements to help customers get their money back?either because of regulatory actions, because of lawsuits, or because it was the right thing to do. Raymond James was one of the firms that hawked auction rate securities as a safe cash equivalent, but it does not appear that Raymond James’s customers have gotten any relief even though these securities were clearly misrepresented and most of the the investors who bought them have been unable to cash out for the last 14 months. Why are the regulators ignoring Raymond James and leaving that firm’s customers out in the cold to fend for themselves?
Auction rate securities are debt instruments with a long term maturity for which the interest rate is regularly reset through a complex auction process. Such auctions were once held every 7 to 35 days by the brokerage firms that dealt in such securities, but the auctions ground to a halt in February 2008 because they were no longer viable investments and broker-dealers who had previously propped up the market by bidding in their own auctions were no longer inclined to invest in them either. The result has been that holders of auction rate securities have been unable to cash out, and investors who were led to believe that they were purchasing cash equivalents have learned that they essentially have no liquidity at all. They are left holding long-term securities, typically 40-year bonds, which they have no way of getting out of unless they are able to sell them at a discount in a limited secondary market.
Craig T. Jones, an attorney with the Atlanta law firm of Page Perry, says “the entire auction rate securities market was a house of cards, but nobody knew it except for the brokers who were hiding the fact that they were propping up the market by manipulating the auction process and hiding material information from investors.” In addition to the fact that the returns were skewed by market manipulation, investors were told that they were purchasing a cash equivalent. This was a misrepresentation given that liquidity was wholly dependent upon the success of the auction process. “Anyone who invested in auction rate securities potentially has a lawsuit given the misrepresentations that were made across the board to investors,” says Jones.
Lawsuits have been filed against both broker-dealers and underwriters of auction rate securities, including most of the big Wall Street investment banks. “Perhaps there are customers who are either waiting for the market to turn around or are still waiting for the SEC to take care of them, ” says Jones, “but it now appears unlikely that anyone who is still invested in this product will get his or her money back without hiring a lawyer.” Jones’ firm is based in Atlanta but handles investment fraud cases all over the country.