Compliance July 28, 2008

UBS Benches Fixed Income Head Amid Auction-Rate Probes

UBS reportedly suspended its head of fixed-income as state and federal investigations heated up into sales and marketing practices related to auction-rate securities by UBS and other Wall Street firms.

Reported by

Fred Schneyer

New York state Attorney General Andrew Cuomo has followed Massachusetts state securities officials by filing a civil-fraud lawsuit against UBS regarding its sales of auction-rate securities (see NY Next to Target UBS). Neither has charged any individual, though Massachusetts named Shulman as a figure who helped to direct UBS’s efforts (see UBS Securities Faces Charges of Fraud by Mass. Authority).

The Wall Street Journal reported Shulman is cooperating fully with UBS as it works through these matters, quoting Jonathan Gasthalter, a Shulman spokesman.

Both New York and Massachusetts suits allege that UBS and its executives knew the auction-rate securities market was collapsing last year and early this year and did not warn investors. Instead, the suits allege, the firm marketed the securities to institutional and retail investors through its sales forces to clean their own inventories of the investments.

According to the Journal, a UBS spokeswoman said the firm doesn’t believe any of its employees acted illegally, but some might have used poor judgment. She also said UBS will defend itself against any charges.

The Massachusetts regulatory action alleged Shulman sold much of his personal holdings in the instruments.