Just as Massachusetts securities regulator William Galvin did in June (see UBS Securities Faces Charges of Fraud by Mass. Authority), Cuomo alleged the Zurich-based bank committed fraud, misleading investors by its marketing of the long-term securities as money market-like instruments that were easy to buy and sell. He also said the bank continued selling the debt even as the market unraveled and top bank executives unloaded $21 million in personal auction-rate holdings.
In the wake of the Massachusetts charges, UBS AG announced a plan to buy back as much as $3.5 billion of auction-rate preferred shares (see UBS Agrees to Repay Investors of Risky Securities).
In response to the suit by Cuomo UBS spokeswoman Karina Byrne said the bank “categorically rejects any claim that the firm engaged in a widespread campaign” to shift auction-rate debt off its books and into client accounts, and that “While UBS does not believe that there was illegal conduct by any employee, we have found cases of poor judgment by certain individuals and are evaluating appropriate disciplinary measures for these individuals,” according to Bloomberg.
In other actions, the Texas State Securities Board this week filed a notice of hearing to suspend UBS’s state license, Bloomberg repored.
The market for these securities relied on weekly and monthly auctions run by brokerage firms, and the market failed when, starting in February, the auctions attracted only sellers and no buyers. Cuomo earlier this year subpoenaed 18 banks that sold auction-rate securities.