Auction Rate Securities

Los Angeles Lawyer for Victims of Broker Fraud

Making investment decisions can seem daunting, especially with the wide variety of options in today’s market. Most people need a broker to help them decide what makes sense for their situation, and in some instances they trust a broker entirely to make judicious decisions for their financial future. Unfortunately, some brokers take advantage of this relationship and make investment decisions based on what generates the most profit for the firm rather than the investors. A common instance in which brokers take advantage of investors involves auction rate securities (ARS). Los Angeles securities law attorney Steve A. Buchwalter has over two decades of experience representing investors who have been burned by their brokers. He is ready to help you assert your right to the compensation that you deserve.

Recognizing Broker Fraud Based on Auction Rate Securities

Introduced during the 1980s, ARS are preferred stocks or bonds that pay out dividends at varied rates of interest that are set at auction. ARS bonds are typically long-term investments, with maturity rates of between 20 and 30 years. If an ARS involves stock, it is usually preferred stocks in the form of an equity investment. Investors who initially purchased ARS believed the purchase involved something similar to a cash equivalent or money market fund. In some cases, they were marketed as such. Many brokerage firms created additional variations of ARS, including Auction Preferred Shares or Auction Rate Preferred offerings.

Ultimately, however, ARS were not cash equivalent, which came to light during the market crash in February 2008 when roughly 87 percent of the daily auctions failed due to the brokerage firms withdrawing their support from the auctions. After the market crash, ARS transfers froze, and purchasers were stuck with long-term investments offering a low return rate and no way to offload or sell the ARS. The news was soon full of stories about the failure of ARS and the havoc they wrecked on investors.

Bringing a Claim to Pursue Compensation for your Losses

Since the 2008 crash, a series of criminal actions and civil cases have been brought against brokerage firms that sold and marketed ARS to investors. Brokers owe their investor clients a duty of care when advising them about financial transactions and making recommendations on how to handle their finances. Since there is often a disparity between the broker’s experience and an investor’s experience, California law imposes a fiduciary duty on the broker, which is the highest standard of care. Essentially, this requires the broker to put the client’s financial interests above the broker’s own financial interests. This duty also requires brokers to perform due diligence before recommending a certain investment, to disclose all potential risks associated with a possible course of action, and to generally protect the client’s financial health.

If the investor can prove that the broker failed to meet this duty by engaging in fraudulent or negligent conduct, the investor generally will be entitled to the difference between the actual value of his or her account and the estimated value of what his or her account would have held had the broker acted with appropriate care.

Discuss your Securities Law Claim with a Los Angeles Attorney

If you believe that you have been burned by your broker regarding the purchase of an ARS or another financial transaction, you may be entitled to compensation. Los Angeles securities law lawyer Steve A. Buchwalter treats each of his clients with the personal attention and thorough legal representation that they deserve. We understand how devastating an avoidable financial loss can be, especially when the future of your loved ones and you depends on it. Broker fraud attorney Steve A. Buchwalter can advise investors throughout Southern California, including in Beverly Hills, Pasadena, Newport Beach, Irvine, Santa Barbara, and other cities in Los Angeles, Orange, and Ventura Counties. Call us now at 818-501-8987 or contact us online to set up a free consultation.