Investors Believed Dealers Would Come to the Rescue
Organizations that invested in auction-rate securities mistakenly believed that the dealers who sold the instruments would support the auctions, according to a survey released on Monday by the Association for Financial Professionals.
According to the “2008 AFP Liquidity Survey,” many organizations believed that they would be rescued if the market ran into trouble.
The survey states:
“Sixty-nine percent of organizations that invested in ARS over the past four years indicate that dealer support had been implied.“Seventeen percent of organizations that invested in ARS over the past four years indicate that dealer support had been explicitly promised to them.”
The organizations weren’t alone. Many individual investors claim that they were misled about the risks of auction-rate debt.
Auction-rate securities, which were promoted as “safe as cash” investments, are municipal or corporate debt securities or preferred stocks that pay interest at rates set through periodic auctions. The instruments typically have long-term maturity dates or no maturity date.
In mid-February, the auctions for the investment instruments failed. That meant investors were unable to sell their securities. To this day, auction-rate securities investors find themselves owning frozen assets.
Auction-rate securities investors who wish to discuss their rights against any broker-dealer may contact Carey & Danis toll-free at 800-721-2519 or fill out our online contact form
