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Is Your Auction Rate Security Worth N/A?

Effective today, Fidelity Investments has been notified by Interactive Data, its third-party pricing vendor, that they will discontinue evaluating approximately 1,100 student loan auction rate securities (ARS) and 26 asset-backed securities. 

What this likely means for investors is that their next monthly statement will reflect “N/A” for the value of their action rate securities.  This will come as a tremendous shock to many investors who had been told by their brokers not to worry about the frozen auctions because the value of their positions was still there, it was only unavailable for a time.  Now many investors are going experience their greatest fears, the value will disappear from their statements (and possibly from their portfolio).

For investors already on edge due to the auction rate markets freeze, they now will have to deal with the realization that these products are in fact not as they were sold.  They are not cash equivalents.  They are in fact risky investments that can and will cause significant losses to their holders.

Media reports regarding auction rate securities have been widespread over the last several months.  And although many investors were not happy that their investments were tied up due to the failed auctions, many believed that things were only temporary.  Wall Street and its brokers perpetuated these feelings.  Now the truth is coming out.

It is not just Fidelity clients who are likely to witness N/A on their statements.  Investors with auction rate securities at other firms are likely to experience the same fate.  For investors waiting to see what is going to happen in this market, the shock of seeing the loss of value from these positions should move many to action.

The best course of action for an investor concerned with the performance of their ARS is to contact an attorney.  Many cases have already been filed on behalf of investors whose securities have lost all or part of their value.  Clearly these investments were misrepresented to investors.  Now, unfortunately, the losses are being recognized.  

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