How Wall Street Firms Convinced Investors to Put Billions into ARS and ARP Securities Just Before the Auctions “Failed”

An SSE Exclusive: Provided below is a link to a comprehensive expose explaining how Wall Street firms and banks may have convinced investors it was safe to place over $300 billion into “auction rate securities” by promising that these were safe and liquid investments.

During the week of February 11, 2008 the $330 billion market for “Auction Rate Securities” market virtually collapsed overnight as the liquidity of many of these investments disappeared and their safety was reportedly in jeopardy. What had been described to many as safe AAA credits, comparable to money market funds, were instead exposed in a nightmare for investors.

The article states that the result was “mass confusion” which caused by one of the most “convoluted structures ever devised by Wall Street.” The writer, who demonstrates special insight into the situation but desires to remain anonymous, laments that since the problem emerged “[e]veryone has a piece of the puzzle but no one to date put it together in one document.” The article is a MUST READ for all those seeking to understand the nature of this problem, including investors, law enforcement, regulators, attorneys and journalists.

Beginning with a description of the “Time value of Money Concept,” the article then provides a primer titled the “Introduction of the ARS Market,” followed by another describing “Auction Rate Preferred Securities (ARPS),” which are described as “not market based” and which will likely lead to a far worse problem than other ARS securities.

The author alleges widespread deception and non-disclosure by individuals marketing these securities, many who were reportedly repeating what they had been told to say to their clients. “Wall Street houses were making so much money from this process, they were determined to find a way to write as much business as long as possible,” states the author, who describes how such firms kept perpetuating the ruse even after it was evident problems were eminent and were “artificially propping up these markets” until a tsunami of “failed” auctions struck last week.

The securities law firm of Shepherd Smith Edwards & Kantas LTD LLP does not endorse any opinions or allegations of the author of the article but beleives the information and opinions stated therein can be helpful to those seeking to understand the nature of this debacle and its scandalous implications for Wall Street.


ARC and ARP Securities: How Wall Street Brokerage Firms May Have Defrauded Their Clients Out of Billions Overnight Trading, February 24, 2008 (Author’s name withheld by request)