Auction rate securities are long-term bonds that act like short-term debt. Auction Rate Securities can be corporate bonds, municipal bonds, tax-exempt institutions, closed-end mutual funds, and preferred stocks that can be issued by municipalities like cities and towns.

The interest rate on auction rate securities is reset periodically via Dutch auctions. These auctions are where the auctioneer starts with a high asking price that is lowered until someone buys in.

Investment firms misrepresented the auction rate securities to investors as safe, liquid, and short-term cash equivalents, which were like money market funds. The auction rate securities were also frequently sold to investors even if an auction rate security did not meet the investment objectives of the investor.

In addition to misrepresenting the auction rate securities as safe, they were represented as liquid. The thing to note on auction rate securities is that they are only liquid as long as the market is alive. When the market died, the auction rate securities became illiquid.

The Federal Securities and Exchange Commission has started an investigation to find out how auction rate securities were being represented to buyers. As the investigation continues, many lawsuits have been filed which allege that brokers misrepresented auction rate securities. Big name investment brokers have been named already, including Citigroup, TD Ameritrade, Wachovia, Morgan Stanley, Wells Fargo, Merrill Lynch, and more.

If you have been mislead by an investment firm concerning auction rate securities, click here to contact the auction rate securities fraud lawyer Mark Tepper