Auction-Rate Securities Settlements Likely to Offer Many Complexities and Pitfalls for Investors

 

If UBS’s recent SEC filing is any indication, auction-rate securities investors are in for many headaches in trying to receive settlements from brokerage firms. On October 7, 2008, UBS filed a Form F-3 Registration Statement with the SEC as part of the process to effect its auction-rate securities settlement with investors. According to the filing, UBS anticipates sending a prospectus to each auction-rate securities investor that defines the mechanism by which settlements will be implemented. Under the prospectus each auction-rate securities investor will be given the opportunity to exchange his auction-rate securities for one or more of seven series of auction-rate securities rights each of which has certain terms and conditions. The prospectus is written in a lot of legalese and is highly technical.

The terms of the UBS auction-rate securities settlement will come as a surprise to investors. Some of the more unusual terms are generally described as follows:

  • In many cases, investors will not receive immediate payment for their auction-rate securities but will receive auction-rate securities rights. These auction-rate securities rights expire between early January, 2011 and early July, 2012 (depending on series). Pursuant to the prospectus, the investor will receive a payment at par (as defined in the prospectus) when UBS sells or disposes of the auction-rate securities received from the investor. Apparently this will happen periodically over the next two-plus years.
  • If a holder purchased auction-rate securities from UBS from October 1, 2007 to February 13, 2008 but transferred those auction-rate securities to another firm before February 13, 2008, the investor must transfer the auction-rate securities back to the investor’s original UBS account in order to accept the offer and become eligible to receive auction-rate securities rights.
  • Investors will have approximately 30 days to review the prospectus, decide whether to accept the offer and transmit their acceptance to UBS in accordance with the terms of the prospectus.
  • Acceptance of the offer will require the investor to effectively release claims against UBS except for claims for consequential damages that will be subject to a special arbitration process.
  • The prospectus makes it clear that consummation of the settlement will depend upon UBS’s financial resources and that “UBS AG may not have sufficient financial resources to satisfy its obligations under the ARS rights.”
  • Investors may be offered auction-rate securities rights in different series and will have to complete different forms to accept UBS’s offers.

As noted above, the UBS auction-rate securities settlement is complex and described in highly technical terms. Investors are encouraged to review the prospectus very carefully and to comply with all of the terms and conditions set forth therein if they decide to accept UBS’s offer. This will be a time consuming process. If investors have significant auction-rate securities holdings and are confused the terms of the prospectus, they are encouraged to seek the advice and assistance of counsel in complying with the terms of the offer.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors with auction-rate securities problems. For further information, please contact us.