Reuters reports that in the complaint, top state securities regulator William Galvin accused UBS Securities LLC and UBS Financial Services of aggressively selling the investments to customers at a time when a top executive from the bank was dumping them from his personal holdings and large money managers were losing faith in them. The lawsuit says UBS presented the securities as being as safe as money market funds, while failing to inform investors about potential risks or that it was manipulating the auctions.
“UBS pushed the sales of these instruments as ‘cash alternatives’ without telling their customers of their vulnerabilities,” Galvin said in a statement, according to Reuters. The suit is asking that the subsidiaries give investors their money back and reimburse those who had to sell at a loss.
In May, UBS Financial Services Inc. reached an agreement with Massachusetts Attorney General Martha Coakley to return $37 million to 17 cities and towns, as well as to the Massachusetts Turnpike Authority, for allegedly misleading them about the auction-rate securities (see UBS Agrees to Repay Investors of Risky Securities).
State regulators in New Hampshire and the U.S. Securities and Exchange Commission are also investigating the matter, Reuters said. The news report explained that auction rate securities are sold by local governments and charitable organizations to fund their operations, and are popular with retail investors because they pay interest rates that are set in weekly or monthly auctions run by Wall Street brokerage houses.