Today UBS tentatively agreed to buy-back $19.4 billion in auction-rate securities in order to resolve regulatory actions initiated by the Massachusetts Secretary of State, other members of a state auction-rate securities task force and the SEC. In addition, the firm agreed to pay a $150 million fine to settle the regulatory claims. The full details of the settlement will be announced next week.
The regulatory investigation asserted that UBS pressured financial advisors to sell auction-rate securities as cash equivalents that were safe and liquid without disclosing significant risks to investors. At the same time that UBS was engaged in this aggressive sale campaign, the firm, internally, was extremely concerned about the auction-rate securities markets and was exploring exiting the same. Ultimately, investors sustained significant harm when UBS and other securities dealers stopped supporting the auction-rate securities markets and auctions froze. UBS’ legal exposure was particularly severe in light of the fact that various UBS insiders were simultaneously disposing of their own auction-rate securities while the firm was encouraging investors to purchase the same.
It remains to be seen how larger pension plans, businesses and other institutional investors will be treated under any UBS settlement. An earlier settlement with Citigroup, involving similar allegations, essentially left it to these larger investors to fend for themselves.
UBS’ tentative settlement represents the third action by a major Wall Street bank to resolve outstanding regulatory problems related to auction-rate securities and certain legal claims associated with the sale of these investments. It remains to be seen whether other firms being investigated for inappropriate sales of auction-rate securities will follow suit. Among the other firms being investigated for inappropriate sales of auction-rate securities are the following: Morgan Stanley, Goldman Sachs, Bank of America, JP Morgan Chase, RBC, Wachovia/A.G. Edwards, Lehman Brothers, Oppenheimer, and Credit Suisse.
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 in auction-rate securities cases. For further information, please contact us.