Articles<title><META NAME="DESCRIPTION" CONTENT="Articles"><META NAME="KEYWORDS" CONTENT="Articles"><link href="css/style.css" rel="stylesheet" type="text/css" /> </head> <body> <script type="text/javascript" src="js/jquery.min.js"></script> <script type="text/javascript" src="js/fadeslideshow.js"> </script> <script type="text/javascript"> var mygallery=new fadeSlideShow({ wrapperid: "fadeshow1", //ID of blank DIV on page to house Slideshow dimensions: [910, 246], //width/height of gallery in pixels. Should reflect dimensions of largest image imagearray: [ ["images/banner1.jpg" ], ["images/banner2.jpg"], ["images/banner3.jpg"], ["images/banner4.jpg"], ["images/banner5.jpg"], ["images/banner6.jpg"] //<--no trailing comma after very last image element! ], displaymode: {type:'auto', pause:2500, cycles:0, wraparound:false}, persist: false, //remember last viewed slide and recall within same session? fadeduration: 1500, //transition duration (milliseconds) descreveal: "ondemand", togglerid: "" }) </script> <div id="warp"> <div id="header-bg"> <div id="contaner"> <div id="header"> <div id="header-top"> <a href="mailto:info@savagelaw.us"><img src="images/header-email.jpg" border="0" alt="Header email image of Savage Law, Business lawyer Florida"/></a> <h1>The Savage Law Firm, <span style="font-size:18px;">PA Tampa, Florida</span></h1> <div style="height: 12px;"></div> <p class="pa">A Professional Association</p> <span class="phone">813-251-4890</span><span class="ESQ">Robert Savage, ESQ</span> <div class="clear"></div> <div id="nav"> <ul> <li><a href="index.shtml" >Home </a></li> <li><a href='OurAttorneys.shtml' >Our Attorneys</a></li><li><a href='ArticlesFAQs.shtml' >Articles/FAQ’s</a></li><li><a href='ContactUs.shtml' >Contact Us</a></li><li><a href='Resources.shtml' >Resources</a></li><li><a href='Mediation.shtml' >Mediation</a></li></ul> </div> </div> <div class="clear"></div> <div id="banner"> <div id="fadeshow1" style="_margin-top: -3px; "></div> </div> <img src="images/bottom-banner.jpg" alt="Bottom banner image of Savage Law, Stock Loss Lawyer"/> </div><div id="content2"> <div id="leftnav"> <ul> <li><a href='PracticeAreaOverview.shtml'>Practice Area Overview</a></li><li><a href='FacilitatingForeclosures.shtml'>Facilitating Foreclosures</a></li><li><a href='Negligence-Fraud.shtml'>Stockbroker Misconduct</a></li><li><a href='Stockbroker-Brokerage.shtml'>Stockbroker Representation</a></li><li><a href='Business-Consulting.shtml'>Business Services</a></li><li><a href='Mediation.shtml'>Mediation</a></li><li><a href='Overview.shtml'>Business Dispute Resolution</a></li><li><a href="calendar.php?month=9&year=2010">Calendar </a></li> <li><a href="/blog">Blog </a></li> </ul> <div style="height: 15px; "></div> <center><a href="http://www.avvo.com/attorneys/33602-fl-robert-savage-1285709.html?cm_mmc=Avvo-_-Avvo_Badge-_-Micro-_-1285709" target="_blank" style="margin: 10px 0px 0px opx;"><img alt="Avvo - Rate your Lawyer. Get Free Legal Advice." src="http://assets1.avvo.com/images/microbadge.png?1267488232" border="0" /></a></center> </div><div id="right"> <h1>Auction Rate Securities are in the news - and not for any good reasons!</h1><p style='margin-left:50px;'><br /> <p><strong><em>What are Auction Rate Securities?</em></strong></p> <p>Auction rate securities (hereafter, "ARS") are investments that often have 20 or 30 year maturities that were supposed to (and for a long time did) give the investor a short-term option to liquidate. The interest rates or dividends paid by ARS were typically 'reset' through auctions every 7, 14, 28, or 35 days.</p> <p><strong><em>Why did my broker tell me the Auction Rate Securities were as good if not better than a certificate of deposit? </em></strong></p> <p>Don't automatically blame your broker - he or she probably didn't know. In fact, many brokers are now angry at their brokerage firm for not having properly trained them about the incredible risks associated with the ARS investments. The brokerage firms, despite their duty to do so, did not even properly disclose to their staff the true risk profile of the products.</p> <p><strong><em>I thought that the ARS had frequent auctions so how could an auction fail and my cash-like investment become illiquid?</em></strong></p> <p>Historically (since 1988 when the ARS first came to market) periodic were held and those auctions provided liquidity to ARS investors. However since February of 2008 these auctions have been failing and thereby creating a huge liquidity problem for investors.</p> <p>The auctions normally happen like this: before each auction date, investors who want to sell their ARS tell their broker that they want to do one of three things. First, investors could tell their broker to sell their ARS. Second, investors could tell their broker to hold at a specified interest or dividend rate. Or, third, investors could tell their broker that they want to at the interest rate or dividend that results from the auction. Similarly, ahead of each auction investors who want to buy ARS tell their brokers how much they want to buy and at what interest or dividend rate.</p> <p>On auction day buy orders are accepted by buyers from the lowest to the highest interest or dividend rates bid. After all of the ARS securities offered for sale are sold, the 'clearing rate' (the highest rate accepted in the auction) is applied to all ARS until the</p> <p>next auction date.</p> <p>However, ARS auctions have been failing because there are too many sellers and not enough buyers. After a failed auction ARS holders have to continue to hold their ARS but will normally get a higher-than-market interest or dividend rate until the next auction. Of course, there may be limits to the amount the ARS investor will be able tot get depending on the offering document for a particular ARS.</p> <p>The negative developments in the in the credit market such as bond issuer credit rating downgrades have caused the vast majority of auctions to fail. That means that many investors who were promised quick access to their money were shocked to find that they could not get their cash. So now those investors are looking for options to help them out of this enormous and stressful problem.</p> <p><strong><em>What are my options if I have ARS investments?</em></strong></p> <p>If you have the ARS offering documents you can review them to see if the issuer included any options available to investors in case of a failed auction. Some issuers may "call' (redeem or repurchase) the ARS at a set price or maybe an ARS issuer retained the right to convert to a fixed or variable rate security.</p> <p>If you are one of the many ARS investors and you need cash to one extent or another your options include:</p> <p><strong>Option 1: Continue to Hold. </strong>This option would be most appropriate if you are an investor who can wait for the money for an unknown length of time. It may be that you are comfortable with the higher rate the ARS may be paying (if they are still paying) and you can wait until the next auction. In normal times that next auction would be within a month or so, but these days it is increasingly unlikely that next auction will succeed. Of course, if you have an ARS that has a call option it may be that if you continue to hold the issuer may call or convert the ARS into something more marketable and liquid.</p> <p><strong>Option 2: Sell Other Investments. </strong>If you need cash immediately you may be lucky enough to have the option of selling other investments to raise the funds you need. This option has its own potential problems, including, but not limited to, possible tax consequences if there is a gain in the investments you sold or the sale might trigger deferred contingent sales charges. Additionally there will be transaction costs such as commissions when you sell the other investments. Another potential problem is how the sale of other investments impacts the diversification of your portfolio. Given the likely impact of this option it should only be considered after careful consultation with a financial advisor and a tax advisor.</p> <p><strong>Option 3: Take a Margin Loan. </strong>Brokerage firms are now offering to give ARS holders a loan collateralized by the client's ARS investments. This means in essence that you are paying for the privilege of borrowing your own. Normally in a margin loan you will pay more for the margin loan interest than you are earning from the ARS. You should also be wary of the loan documents to make sure that you understand whether the brokerage firm included a waiver of liability for themselves or if you are responsible for any shortfall caused by the declining value of your ARS collateral. Also if you have ARS investments involving tax-exempt securities, you may lose the ability to deduct some or all of the interest you are paying on the loan. Be sure to consult a tax advisor before agreeing to take a ARS margin loan from your brokerage firm.</p> <p>Make sure to understand what Margin involves. Among other things, when you take a margin loan the brokerage firm can force you to sell securities in your account if the ARS value falls below the firm's 'house' margin requirements. The brokerage firms can increase the house margin requirements at any time without notice to you.</p> <p>Also be aware that a firm is not required to make a margin call but most of the time a brokerage firm will make a margin call out of courtesy. Remember too that the brokerage firm still can sell at any time any securities in your account to cover the call, even if they gave you a margin call and some time to meet the margin call. Margin extension is at the discretion of the brokerage firm and you are not entitled to an extension.</p> <p><strong>Option 3: Try to Access the Secondary Market. </strong>The brokerage firms seem less likely to buy back your shares as this ARS situation gets worse. Selling without an auction makes it harder to know if you are getting fair value for your ARS. It is not uncommon for these secondary market type of transactions to have higher transaction costs.</p> <p><strong>Option 4: Find a lawyer to help you resolve these issues. </strong> If your brokerage firm is not being cooperative you should find an attorney to assist you in your efforts to get your money back and you should look for a firm that has experience working on cases involving securities fraud, misrepresentations, omissions, and other violations of securities rules and regulations. The <a href="http://www.savagelaw.us/">Savage Law Firm, P.A.</a> is a law firm that focuses most of its efforts towards helping defrauded investors to recover money they lost due to a brokerage firm's misconduct, negligence, fraud, and other possible problems. One of our lawyers can spend the time with you to help you figure out what to do to recover your losses.</p> <p><strong>What happens if the issuer redeems my ARS? </strong></p> <p>It may be that your ARS investments are either fully or partially redeemed. If it is partially redeemed not all shares will be redeemed so you will not get all of your money back. Partial redemptions are handled by the Depository Trust Company ("DTC") which is a company that holds shares for millions of issues and also does book entries for shares held in 'street name.' The DTC, in a partial redemption, will allocate the redemption among all the brokerage firms who have shares on deposit with DTC. Not all brokerage firms will get part of the partial redemption and if your brokerage firm is one of them, you will not benefit from the redemption. If your brokerage firm does get some of the partial redemption they are required to have a procedure to equitably distribute the redemption among its clients holding the redeemed ARS.</p> <p><strong><em>Where do I find help?</em></strong></p> <p>First thing is to ask your broker if any of your ARS investments are being redeemed and find out what type of redemption it is. Your brokerage firm can give you what information you need to take advantage of the redemption should one exist. If your brokerage firm is being uncooperative you should find a law firm to help you.</p></p> </div> </div> <div class="clear"> </div> <div id="main"></div> <div class="clear"> </div> <img src="images/savage-farm.jpg" alt="Savage-farm image of Business attorney Florida" /> <div id="bottom"> <p>We have a local, regional and national practice. 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