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James, McElroy & Diehl represents investors impacted by the failure of the auction rate securities market, with a particular focus on the intricate issues related to student loan backed auction rate securities products. The firm has been involved in arbitration before the Financial Industry Regulatory Authority (FINRA) and worked with the Office of the Secretary of State of North Carolina in an effort to bring relief to institutional clients affected by the crisis.

Information on Auction Rate Securities:

Our country’s recent credit crisis brought with it the partial collapse of the $330 billion auction rate securities market. The securities were traded at auctions that typically occurred on 7, 28, or 35 day intervals. Investment banks sold these securities to clients as an alternative to money market funds or other short term investments. The market for these products grew dramatically in the early 2000s, as a broader variety of companies and entities looked to take advantage of auction rate securities as a way to raise money. The market appeared to function smoothly, but depended to a large extent on financial institutions purchasing these securities through the use of “support” or “cover” bids when there wasn’t enough investor demand.

Beginning late in 2007, the market for certain types of auction rate securities began to collapse. The financial institutions which had been supporting the auctions stopped doing so in February 2008, and widespread auction failures occurred. Due to complex formulas contained in the offering documents, the auction failures particularly impacted those who owned auction rate securities backed by student loans, as those types of securities reverted to artificially low interest rates. Now, billions of dollars remain frozen in the defunct market, with investors stuck holding long term bonds paying below market interest rates.