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UBS Faces Dark Days


Massachusetts Secretary of the Commonwealth William Gavin has charged UBS AG's UBS Securities, LLC and UBS Financial Services with fraud and dishonest conduct regarding the firms retail sales of auction-rate securities.

"The game was fixed; only the customers were in the dark," Gavin said.

The Massachusetts complaint alleges that the Swiss bank knowingly allowed its brokers to present auction-rate securities as if they were safe and risk-free. After the program failed, many investors were left holding securities which they could not sell.

The complaint also charges UBS with records violations on account of "inexcusable delays" that the firm had in releasing basic records regarding their auction practice.

"While UBS was aggressively selling ARS to its customers, UBS' man in charge of orchestrating the sales campaign was bailing out of his personal holdings in that investment as early as August of last year," the complaint said.

UBS spokeswoman Karina Byrne responded to the charges by saying that firm is disappointed by the complaint.

"Contrary to the allegations, UBS is committed to serving the best interests of our clients," Byrne said. "We have offered our clients loans of up to 100% of the par value of their ARS holdings at preferred lending rates. UBS, our clients and clients of other industry participants all share the impact of this unprecedented loss of liquidity in the ARS market."

Ultimately, the state would like UBS to pay an administrative fine and return all investor funds.

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