Article by Stephanie Lee and Max
Egan*
In February 2008, auction-rate securities (ARS) experienced
widespread auction failures, and since that time, claimants have
filed hundreds of related arbitration claims and lawsuits. Many
investors who held ARS exited their positions when issuers
restructured or refinanced their securities, and many exited or
will exit positions when broker-dealers repurchase ARS under
regulatory settlements. Student loan auction-rate securities
(SLARS), an important auction-rate category, are a type of student
loan asset-backed security (SLABS) which have their interest rates
reset at frequent and periodic auctions.1 Unlike ARS
issued by municipalities or by closed-end mutual funds, SLARS have
seen little refinancing or restructuring activity since February
2008. Furthermore, auction-rate regulatory settlements did not
cover all investors. While it is too early to know how the pending
matters will ultimately be resolved, many of the ongoing
