My Broker Invested Me In ARS
And I Cannot Get My Money Back. What Are My Options?
If your broker misled you and put your money into ARS
based on representations that ARS were high-yield liquid
investments, you may have limited options.
You can hold onto your ARS until the issuer either redeems
the securities or until a successful auction occurs. However,
the likelihood that the issuer will redeem your ARS is
speculative, and even if the issuer chooses to redeem your
ARS, they may choose to redeem only a portion of your ARS
and/or they will choose to redeem your ARS, but only at
a discounted rate. Furthermore, given the current
state of the ARS market, there is no guarantee that a successful
auction will take place in the near (or distant) future.
In sum, if you wait for either of these options to come to fruition, you may find yourself waiting indefinitely and may never recover your investment.
You can attempt to sell your ARS in the secondary market with platforms that attempt to broker transactions for the sale of restricted securities and other illiquid assets. However, in order to even attempt to sell your ARS on the secondary market, you must frequently become a member of the secondary market platform through which you will attempt to sell your ARS. This means going through an application process and paying a fee just to have the opportunity to attempt to sell your ARS. Of course, there are no guarantees that you will be able to sell your ARS through these secondary market platforms.
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Moreover, even if you were able to find a willing buyer, you may be asked to sell at a significant discount. Also, these secondary market platforms charge significant fees for brokering successful transactions.
The end result is that you still may not be able to liquidate your ARS and even if you are able to find a buyer, you may sustain a significant loss.
You can request a loan from your broker firm to obtain some short-term relief to cash-flow issues you may be having. However, this option is not be available to all ARS investors and should not be entered into without a full understanding of the terms of the loan. By way of example, the interest rate charged on these loans may exceed the yield you are getting on the underlying security. Also, borrowing against a tax-exempt security may result in adverse tax consequences to you. Thus, you should carefully consider the terms of the loan and speak with an accountant before entering into such an agreement.
Another option is to wait for the government to propose and implement strategies to remedy the ARS debacle. For example, on April 24, 2008, Congress asked SEC Chairman, Christopher Cox, to grant “temporary relief” from current regulations so that closed-end fund investors with auction-market preferred stock could be afforded some protection. However, government intervention is uncertain at best and not all government initiatives will benefit all ARS holders.
One alternative is to become proactive and commence arbitration proceedings against your broker for misrepresentation, negligence, or other malfeasance. By initiating arbitration proceedings, you may not only obtain recovery of your entire investment, but some State securities laws provide for the recovery of attorneys’ fees and costs as well as exemplary damages.
The law firm of Frier & Levitt, LLC successfully represents investors in arbitrations against broker/dealers before the Financial Industry Regulatory Authority (“FINRA”), i.e., the forum in which securities fraud matters such as ARS fraud and negligence matters are arbitrated.
For more information about this blog or to discuss how Frier & Levitt,
LLC can assist you in recovering your ARS investment, please feel free to
call us toll-free at (888) LEVITT1 or write
to us using our online form.
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