Massachusetts sues UBS over auction-rate securities

Investors who are trapped in so-called auction-rate securities found a friend today in Massachusetts Secretary of State William Galvin: He sued brokerage UBS for fraud relating to the firm’s sale of the securities in the Bay State. Read the complaint here.

From Bloomberg: "We want complete rescission and restitution for all investors in Massachusetts," said Galvin, who estimated that UBS sold at least $190 million of the auction-rate securities to 237 investors in the state. "We think the conduct on the part of UBS was totally unacceptable."

Auction-rate securities are a form of debt issued by many municipalities and closed-end mutual funds in recent years. They are, in effect, long-term bonds masquerading as short-term debt. The interest rate they paid typically was reset at weekly or monthly auctions.

Brokers often pitched the securities as equivalent to money market funds, but with higher yields. As the credit crunch worsened this year, however, many investors have pulled back from complex debt issues. As auction-rate issues failed to attract new buyers at their weekly or monthly rate resets, most current owners of the $300-billion-plus in securities were told they were stuck with them.

Some issuers have been able to refinance the securities in the last month or so. Nuveen Investments today announced plans for the refunding of some of its municipal bond mutual funds' auction-rate issues. But many investors will remain trapped in the securities at Nuveen funds and elsewhere.

Also from Bloomberg: Karina Byrne, a spokeswoman for UBS in New York, said the firm was "disappointed" with Galvin’s complaint and "will defend the specific allegations."

A good place for investors to stay updated on the auction-rate mess is here. For more on what the states are doing to help investors, look here.

Comments

[Stuart D. Meissner Esq.]

As a former regulator from the NY State Investor Protection and Financial Crimes units of the Atty General's office - I Congrat Galvin for having the guts to file the charges and releasing evidence. Such will be invaluable to pursuing arbitration claims against UBS on behalf of individual investors which we are doing. However, I question whether the State will go all the way in seeking all what it claims, as history shows that often there are settlements which amount to a slap on the wrist and firms do not even admit they did anything wrong. Hopefully, this time it will be different. In any event thanks for the release of information. It would be more helpful to individual investors if the office also releases the actual transcripts of the depositions as well.

Anyone (brokers or clients) with more information regarding UBS or any of the major broker-dealer's handling of ARS, or who may be willing to testify in arbitrations to assist our clients from around the country, please contact us in confidence.

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