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February 25, 2010

Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty

As part of a deal to settle ARS insider trading allegations by New York Attorney General Attorney Cuomo, former UBS AG executive David Shulman has agreed to pay $2.75 million. Shulman is accused of finding out through nonpublic, material information that the investment bank’s student loan auction rate securities program was in trouble and that there was a possibility that future auctions involving the student ARS would fail. Yet he allegedly violated New York securities regulations when he proceeded to sell more ARS.

On December 13, 2007, two days after finding out about the ARS risks, Shulman, who supervised the ARS trading desk, sold $1.45 million in personal holdings of student loan ARS to the desk. He was suspended in July 2008.

Shulman has not denied or admitted to the document’s findings. However, as part of the agreement with Cuomo, he is subject to a retroactive 30-month suspension from working as a registered broker-dealer.

In the wake of the ARS market collapse in February 2008 that left so many investors, who were misled into believing their investments were as liquid as cash, with frozen securities, Cuomo remains committed to investigating broker-dealers’ auction-rate securities marketing and sales practices. Many of the investment firms that sold the ARS did so despite allegedly knowing that the securities were in danger of failing.

Since August 2008, Cuomo has gotten 12 financial service firms to agree to repurchase $61 billion of ARS at par. As part of their securities fraud settlements, the broker-dealers are paying $597.3 million in penalties.

Related Web Resources:
Former UBS Muni Chief Settles Probe for $2.75 Million, BusinessWeek, February 18, 2010

Attorney General Cuomo Announces $2.75 Million Insider Trading Settlement with Former UBS Top Executive David Shulman, Office of the NY Attorney General, February 18, 2010

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Posted In: Auction-Rate Securities , Financial Firms , Insider Trading , UBS

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February 13, 2010

Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading

David Slaine, a former manager for Chelsey Capital, has pleaded guilty to using UBS insider tips that allowed him to earn over $3 million for the hedge fund while he made more than $500,000 in illegal profits. The inside information was given to him by an ex-UBS Securities LLC executive.

According to the US Securities and Exchange Commission’s complaint, Slaine must still settle the SEC’s securities fraud allegations against him. The agency claims that Erik Franklin, a Chelsey Capital colleague, gave Slaine the tips. Franklin had received them from Mitchel S. Guttenberg, who worked in UBS’s equity research department as an executive editor.

The tips, which were UBS analysts’ equity securities recommendations, were supposed to be nonpublic. Slaine, however, used the information to trade in advance of the recommendations. In 2002, he made over 20 trades using that information.

SEC has settled related allegations against Guttenberg, Franklin, and five others. Guttenberg, who was convicted of insider trading, is serving 78 months in prison.

Slaine could be sentenced to up to 25 years behind bars. Although he pleaded guilty in December, this information was only made public this month. The former hedge fund manager has also been identified as a government cooperator in the Galleon hedge fund insider trading scheme.

Related Web Resources:
Ex-NY fund manager Slaine pleads guilty, Reuters, February 2, 2010

Ex-Galleon Trader Slaine Pleaded Guilty, Sued by SEC in Probe, BusinessWeek, February 3, 2010

Investor charged in Galleon insider trading case, TimesOnline, February 2, 2010

Continue reading "Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading" »

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Posted In: Financial Firms , Hedge Funds , Insider Trading , UBS

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December 11, 2009

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.
• 53% of Wells Fargo Advisors (includes Wachovia Securities and AG Edwards) brokers said their place of work was #1.
• UBS received the least accolades from its workers, with just 1/3rd of its brokers ranking it as the best securities firm workplace.

However, UBS brokers were at the top of the heap for self-reported metrics. According to UBS advisers, they claim an average $101.2 million for assets under management and gross production of $696,032. Other firms:

• Merrill Lynch representatives: $655,250 average gross production; $97.1 million under management
• Morgan Stanley Smith Barney brokers: $84.9 million under management ; $619,961 in production
• Wells Fargo representatives: $80.2 million in client assets; $542,350 in production
• Edward Jones representatives: $364,258 in average production; $58.6 million in assets under management

Yet, as Shepherd Smith Edwards & Kantas, LLP founder and stockbroker fraud lawyer William Shepherd points out, “securities brokers at large firms with average production receive about 30% of their gross production in pay. Brokers at Edward Jones receive about half. Thus, the take home pay for the brokers is not as different as is indicated. In any event, it is notable that the average stockbroker earns about $200,000 per year, a college degree is not required to gain a license, and the training takes only 4 months.”

Related Web Resources:
UBS Reps Least Happy Among Big-Firm Brokers, Wall Street Journal

Registered Rep

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Posted In: Edward D. Jones , Financial Firms , Merrill Lynch , Miscellaneous , Morgan Stanley , UBS , Wells Fargo

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December 9, 2009

UBS Loses Lehman Arbitration Note Claim by Small Investor

In an arbitration case that could affect numerous cases that are still pending, a Financial Industry Regulation Authority panel awarded a small investor $200,000 after finding that a UBS Financial Services broker acted inappropriately when he sold high-risk Lehman Brothers Holdings Inc. principal-protected notes to the claimant.

The case involving Lehman notes is one of the first to be decided by a FINRA panel. While the ruling won't establish a precedent, it could be an indication of how similar rulings may go in the future. “There are many cases pending against UBS and other firms that sold Lehman notes shortly before Lehman failed,” said stockbroker fraud attorney William Shepherd, whose firm, securities fraud firm Shepherd Smith Edwards and Kantas, LLP, is handling a number of such cases. “These cases often involve misrepresentations and omissions as well as unsuitability, since the investments were sold to clients who sought safety and income,” he added.

The claimant filed the arbitration claim accusing UBS of recommending structured products that are not suitable for “unsophisticated investors.” The broker purchased for the client a $75,000 return optimization note and a $225,000 guaranteed principal protection note. The FINRA panel determined that the claimant should be compensated for the principal protected note, in addition to legal fees and interest.

Although the amount awarded is less than what the investor hoped to recover, a UBS spokesman said the securities firm was disappointed that the claimant was awarded any damages and maintains the investor’s financial losses were a result of the collapse of Lehman Brothers.

Investor Wins Lehman Note Arbitration, Wall Street Journal, December 5, 2009

FINRA awards US investor in Lehman notes $200,000, Reuters, December 5, 2009

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Posted In: Arbitration , Financial Firms , Lehman Brothers , UBS

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September 28, 2009

UBS Securities, Citigroup Global Markets, and Deutsche Bank Securities Agree to FINRA Sanction Over Vonage IPO

Citigroup Global Markets, Deutsche Bank Securities, and UBS Securities have agreed to pay fines for Financial Industry Regulatory Authority sanctions over their handling of Vonage LLC stock's initial public offering in 2006. FINRA says that the firms’ failure to adequately supervise communications with customers cost investors hundreds of thousands of dollars. By agreeing to settle, none of the broker-dealers are agreeing to or denying wrongdoing.

The three firms acted as the Vonage offering’s lead underwriters. A “directed share program” was included. Clients used accounts with the broker-dealers to purchase about 4.2 million shares.

An external company designed and administered a Web site for DSP participants that the firms’ clients used to communicate about the IPO. According to the SRO, however, inadequate supervision and the failure to follow procedures regarding outside sourcing and directed share programs resulted in the broker-dealers being unable to respond appropriately or take effective action when certain clients obtained misinformation about their orders.

By the time customers were finally notified that shares were allocated to them, the Vonage stock price had dropped significantly compared to the offering price. In addition to paying the higher price, investors sustained financial losses when the stocks were sold.

UBS, Citigroup, and Deutsche Bank have agreed to fines totaling $845,000. UBS will pay a $150,000 fine and a maximum of $118,000 to 26 clients who are potentially eligible. In addition to its $175,000 fine, Citigroup will pay 284 potentially eligible customers a maximum of $250,000. Deutsche Bank will pay 59 potentially eligible clients a maximum of $52,000, plus its $100,000. Customers are to be compensated the difference between Vonage stock’s price when clients found out they had been allocated shares and the $17/share IPO price that they paid.

Citi, UBS, Deutsche Fined Over Vonage IPO

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Posted In: Broker Fraud , Citigroup , Deutsche Bank , Financial Firms , UBS

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September 16, 2009

Securities Fraud Lawsuit Against UBS AG Gets Added Steam with Employee Email Calling Collateralized Debt Obligations “Vomit”

UBS AG must post a $35.6 million bond, says Superior Court Judge John Blawie. Blawie says that hedge fund Pursuit Partners, LLC has sufficient evidence to pursue its securities fraud case claiming that the investment bank knew it was selling collateralized debt obligations that were toxic to institutional investors but did nothing to inform clients about the risks.

Blawie cited an e-mail written by a UBS employee that called the asset-backed securities “vomit.” Another e-mail noted that UBS was selling Pursuit CDOs that were “crap.”

The judge is letting the securities fraud complaint go forward without ruling on the case’s merits. Between July and October 2007, UBS sold the hedge fund CDOs valued at $40.5 million. Following the global credit crisis, there has been $1.7 trillion in losses and writedowns.

UBS employees marketed the CDOs to Pursuit while they were communicating with Moody’s Investors Services Inc. The credit-rating agency was tasked with reviewing UBS’s CDO investment grade ratings. Blawie says that the UBS employees found out after meeting with Moody’s that the CDOs would become “financial toxic waste.”

The securities fraud lawsuit claims that UBS new that Moody’s was going to change its rater’s methodology but that the investment bank continued to promote the CDOs as if the changes were not going to happen. When Moody’s tchanged its market-based formula to focus on where prices were going instead of current prices, the CDOs value immediately fell.

Pursuit contends that it suffered a $35.6 million loss as a result of UBS concealing the non-public data it had about the CDOs investment grade rating dropping. It also says that because UBS took two sides of a derivatives contract, the investment bank was able to liquidate the CDOs and did not sustain losses.

UBS denies the allegations and argues that Pursuit knew the risks that came with buying the CDOs. The investment bank claims that the hedge fund made the purchases at hugely discounted rates as high as 96%. UBS spokesperson said that one e-mail from Pursuit called the CDOs “sh__.”

Moody’s is also a defendant in the securities fraud lawsuit.

Related Web Resources:
Lawsuit Against UBS Resurfaces to Threaten Wall Street Itself, Seeking Alpha, September 15, 2009

UBS Hit by Another Lawsuit, Business Week, March 6, 2008

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Posted In: Collateral Debt Obligation , Credit Ratings Agencies , Financial Firms , Moody's , Securities Fraud , UBS

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August 12, 2009

UBS AG and Merrill Lynch Collectively Fined $250,000 by FINRA for Closed-End Fund Actions

UBS Financial Services Inc. has agreed to be fined $100,000 and Merrill Lynch, Pierce, Fenner & Smith Inc. has consented to a $150,000 fine, says the Financial Industry Regulatory Authority, for alleged supervisory failures that resulted in the inappropriate short-term sales of closed-end funds that were bought at initial public offerings for the funds. By agreeing to settle, the broker-dealers are not deny or admitting to the FINRA charges. They are, however, consenting to the findings.

FINRA also announced that it was suspending five Merrill Lynch brokers for 15 days. Each of them must pay a $10,000 fine for allegedly making fund recommendations that were unsuitable for investors.

Merrill Lynch brokers that FINRA has sanction include:

• Kenneth C. Iwelumo (his clients lost about $563,000)
• Joseph Miller (approximately $130,000 in client losses)
• Ronald Kemp (about $411,000 in customer losses)
• Michael Kizman (about $210,000 in losses)
• John Ong (about $350,000 in client losses)

The investigation into the activities of a number of former UBS brokers is ongoing.

Closed-End Funds
Closed-End Funds are investment companies that sell a fixed number of shares during an initial public offering. These sales come with built-in sales charges. The CEF’s at issue came with a 4.5% sales charges and a 30-90 day penalty bid period after the IPO. If a client sold the CEF that had been purchased at the IPO during this time period, the broker would lose the commission.

FINRA says that both broker-dealers knew that CEF’s bought at IPO’s are more appropriate for long-term investments and that because of the sales charges that come with their purchases, it is inappropriate to engage in the short-term trading of CEF’s. FINRA claims that Merrill Lynch and UBS did not have the proper supervisory procedures and systems in place so that brokers couldn’t and/or wouldn't make such unsuitable CEF sales.

FINRA also says that both broker-dealers failed to warn supervisors about the potential issues that could result from such activity and did not properly train registered individuals. Due to this improper supervision, brokers for Merrill and UBS recommended that certain clients engage in short-term sales of CEF’s bought at IPOs without fully understanding the financial ramifications these recommendations would have on their clients’ finances.

FINRA is concerned about brokers who convince customers to buy CEF’s during their IPO’s and then wait until after the penalty bid period is over to recommend that clients sell the CEF’s—usually at a loss. These brokers then recommend that clients use the proceeds from the sale to purchase more CEF’s at initial public offerings.

FINRA Fines Merrill Lynch, UBS for Supervisory Failures in Sales of Closed-End Funds; Customers Get More Than $5 Million in Remediation, FINRA, July 28, 2009

Merrill, UBS Are Fined in Closed-End-Fund Case, The Wall Street Journal, July 29, 2009

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Posted In: Broker Fraud , Broker-Dealers , Financial Firms , Merrill Lynch , UBS

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June 12, 2009

Brokers Renew Push for Investors to Buy Structured Products

Brokers are once again getting behind structured products, hoping that investors will bite. While sales of structured products during 2008’s 4th quarter—at $5.8 billion—was down 75% from the year’s 1st quarter, sales are starting to go up. One reason for this is that certain structured products, such as return-enhanced notes and principal protected notes, are considered safer than reverse convertibles, which led to some of the worst losses for investor.

Ideally, structured products are supposed to provide sturdy profits, while limiting losses, and brokers like them because the commissions are high. However, representatives must still account for why these products haven’t delivered the way investors were told they would. Many investors that bought structured products from Lehman Brothers, such as the Lehman principal-protected notes, incurred some large losses. Some of these notes were bought through a UBS Financial Services office in Houston, Texas.

Until the bear market struck, structured products did incredibly well, and sales almost doubled to $105 billion in 2007 before dropping to $70 billion last year when structured products, collateralized debt loans, and credit default swaps played a huge role in the global financial collapse.

Reverse convertibles are considered the most high-risk structured product—short-term bonds with a large interest that can seriously hurt investors if the underlying stock drops dramatically. Investors can end up with shares with a value far below the principal. For example, 78-year-old Dominic Annino says he invested $300,000 in IndyMac shares and JetBlue shares and lost money after the stocks fell. He filed an arbitration complaint with FINRA and claims that the broker that sold him the Wells Fargo reverse convertibles never fully explained to him what he was getting himself into. Still, brokers are hoping that last year’s stock market fiasco won’t discourage investors from trying structured products again.

Twice Shy On Structured Products? Wall Street Journal Online, May 28, 2009

Understanding Structured Products, Investopedia

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Posted In: Financial Firms , Lehman Brothers , Reverse Convertibles , Structured Products , UBS , Wells Fargo

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June 4, 2009

UBS Financial Services Misled Investors about Lehman Brothers Securities, Says New Hampshire Regulators

According to New Hampshire securities regulators, UBS Financial Services Inc., a unit of UBS AG, misled investors regarding complex securities that were issued by Lehman Brothers before the latter filed for bankruptcy protection in 2008. The Bureau of Securities Regulation says investors were misled when the representatives for the UBS unit told them that the securities were safe, while failing to let them know that Lehman Brothers was in trouble. The state regulators are also accusing UBS of failing to properly supervise the employees that sold the structured products and of engaging in improper sales practices.

Some 42 New Hampshire investors could lose more than $2.5 million from securities underwritten by Lehman Brothers. State regulators have filed a cease-and-desist order against UBS and they are seeking an unspecified sum from the financial firm.

UBS disputes the Bureau of Securities Regulation's allegations. The investment bank claims it didn’t do anything improper when it sold the Lehman products to UBS clients and that its employees engaged in the proper sales practices, followed all regulatory guidelines, abided by client disclosure guidelines, as well as followed firm procedures and industry regulations. The investment bank contends that any losses experienced by investors occurred because Lehman Brothers failed unexpectedly. UBS vows to combat the New Hampshire regulators' allegations.

Already, a number of investors have filed claims against Lehman Brothers. Last year, with $613 billion in debt, Lehman filed the largest bankruptcy in US history. Globally, the collapse of Lehman Brothers resulted in investor losses worth billions of dollars. Many clients have blamed lenders for failing to warn them that Lehman was in trouble.

Meantime, Credit Suisse has offered to pay $140.7 million to compensate more than 3,700 of its retail clients for their Lehman financial products that now have no value.

Securities Fraud Attorney Sam Edwards, partner of the law firm of Shepherd, Smith, Edwards & Kantas says: "While many smaller investors into Auction Rate Securities have now been paid, our firm is representing a number of larger investors, many of whom have millions of dollars that have been frozen for more than a year. Many of these are business which have been crippled by the loss of liquidity of these funds and are seeking resulting business losses."

Related Web Resources:
UBS says will fight New Hampshire Lehman case, Reuters, June 4, 2009

UBS Sold Unsuitable Lehman Securities, New Hampshire Alleges, Bloomberg.com, June 4, 2009

Bureau of Securities Regulation

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Posted In: Broker Fraud , Credit Suisse , Financial Firms , Lehman Brothers , UBS

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April 23, 2009

Another Securities Fraud Lawsuit Filed Against UBS International

Another securities fraud lawsuit has been filed against UBS International, which is a division of UBS. This latest claim brings forth allegations similar to those filed earlier in the year against UBSI. Both claims revolve around the use of loans to buy securities, such as stocks, and UBS created products. Shepherd, Smith, Edwards, and Kantas, LLP is the stockbroker fraud law firm to file this latest case.

According to the securities fraud claim, a UBSI broker working out of the Coral Cables office recommended specific loans along with a portfolio that mostly was comprised of equities to a certain Latin American client. Because of this, “margin calls” were made on the UBSI accounts.

When the client couldn’t come up with additional funds, the assets already in the account were sold off, resulting in losses worth hundreds of thousands of dollars. The complaint contends that the transactions made within the UBSI accounts were unsuitable and inappropriate and placed most (if not all) of the investor’s funds at risk.

It is unclear whether the satellite office in Florida had supervisors or compliance officers charged with overseeing the broker. There is evidence, however, that UBSI sent client statements to the broker’s other office in Guatemala rather than directly to the clients. This could have resulted in the client not being able to avail of certain safeguards. The broker also used Americorp Trust, an offshore entity located in the Netherlands Antilles, to deal with this specific client’s assets.

Shepherd, Smith, Edwards, and Kantas, LLP specializes in securities fraud cases requiring litigation or arbitration, as well as cases involving broker misconduct.

Related Web Resource:
SEC Center for Complaints and Enforcement Tips, SEC.gov

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Posted In: Financial Firms , UBS

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March 9, 2009

UBS Sanctioned For Madoff-Related Losses by Luxembourg Financial Services Regulator

In Europe, the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) has censured UBS’s Luxembourg-based branch for failing to execute due diligence and, as a result, allegedly allowing for the massive losses investors have incurred from the Bernard Madoff's $50 billion Ponzi scam. The Luxembourg financial service regulator is accusing Switzerland’s biggest bank of a “serious failure” in the way it managed a feeder fund that funneled assets to Madoff-related investments. Luxembourg’s CSSF is giving UBS three months to remedy the problems.

UBS, however, is disputing the CSSF’s claim that it violated its contractual obligation to clients. The investment bank says the Luxalpha fund was set up at the request of wealthy clients that wanted a tailor-made fund that would let them invest their assets with Bernard Madoff. UBS says these clients knew that it was not responsible for their assets' security.

Following news of the Madoff scheme and revelations that some French investors had allegedly lost billions of dollars because their investments were channeled to Madoff through Luxembourg-based mutual funds, the European Commission announced it would start investigating the way EU member states use the EU mutual fund regulatory regime (UCITS, which refers to Undertakings for Collective Investment in Transferable Securities).The EU also said that approval of a new regulatory regime will more than likely be delayed so more changes can be considered to ensure that investors are protected in the future from losses such as the ones that occurred with Madoff.

The French government accused UBS of lax supervision of mutual funds. French officials have also accused Luxembourg of being lax when it comes to EU mutual fund regulations. They've called on the EU to come up with stricter rules. Luxembourg, which has one of the EU’s mutual fund financial service sectors, disagrees with France’s accusations.

Madoff's scheme has resulted in massive losses for individual investors, institutions, world financial markets, politicians, charities, and many others.

Luxembourg regulator censures UBS over Bernard Madoff, Times Online, February 26, 2009

French investors to take legal action against banks over Madoff feeder funds, Times Online, January 14, 2009

Related Web Resources:
Feds say Bernard Madoff's $50 billion Ponzi scheme was worst ever, Daily News, December 13, 2008

Luxembourg's Commission de Surveillance du Secteur Financier

Continue reading "UBS Sanctioned For Madoff-Related Losses by Luxembourg Financial Services Regulator" »

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Posted In: Financial Firms , Madoff Ponzi Scheme , UBS

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February 13, 2009

UBS Sued by New Orleans Employees’ Retirement System for Alleged Tax Scam that Helped the Rich While Causing Investor Losses

In the US District Court for the Southern District of New York, UBS AG was named as a defendant in a class action lawsuit alleging that the company engaged in a tax scam designed to help rich US investor avoid federal taxes. The plaintiff in the case is the New Orleans Employees Retirement System, which includes purchasers that publicly traded UBS securities between May 4, 2004 and January 26, 2009.

The 120-page complaint says that UBS would encourage analysts and investors to consider “new net money” that came to the investment bank during each reporting period as a major indicator of the company's performance and future prospect. The securities fraud class action lawsuit, however, contends that UBS employed a fraudulent scam to lure a material amount of this “new net money.” This scheme also helped extremely rich US investors avoid federal taxes by placing billions of their dollars in undeclared Swiss bank accounts.

The New Orleans Employees' Retirement System claims the investment bank's Swiss bankers acted improperly and violated Securities and Exchange Commission regulations when they sold securities in the United States even though they lacked the necessary licensing. The plaintiff contends that UBS's fraudulent actions led to the firm generating fees worth hundreds of millions of dollars each year and that these funds were used to create more loans through fractional lending.

The lawsuit also accuses UBS of taking action to conceal the tax scam from investors, the Internal Revenue Service, and the Department of Justice while purposely making it appear that the firm’s Wealth Management division was growing at an unprecedented pace.

The plaintiff says UBS's claims that it had “robust internal controls” and “state of the art risk management tactics” were misleading and false because while UBS was providing these reassurances to investors, it was in fact engaged in its tax evasion scam.

In addition to UBS, defendants in the class action case include Marcel Ospel, Phillip Lofts, Peter Wuffli, Mark Branson, Peter Kurer, Martin Liechti, Peter Kurer, and Raoul Weil.

The putative Class is seeking billions of dollars in damages.

UBS AG

New Orleans Employees' Retirement System v. UBS AG, Justia Docket

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Posted In: Class Action Lawsuits , Financial Firms , Securities Fraud , UBS

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December 22, 2008

UBS and Citigroup to Pay Nearly $30 Billion to Tens of Thousands of ARS Investors

UBS Financial Services, Inc., UBS Securities, LLC, and Citigroup have reached finalized settlements with the Securities and Exchange Commission to pay tens of thousands of ARS investors almost $30 billion. The settlements will resolve SEC charges that the companies misled investors about the risks involved with auction rate securities.

The SEC’s complaint accused UBS and Citigroup of misleading customers by telling them ARS were liquid, safe investments and failing to warn them of the growing dangers when the market started to fail. When the ARS market froze in February, the SEC says both firms left tens of thousands of clients holding billions of dollars in illiquid ARS.

These finalized settlements will restore about $22.7 billion in liquidity to UBS clients who invested in ARS and some $7 billion to Citigroup investors. SEC Chairman Christopher Cox says investors will get back “100 cents on the dollar on their ARS investments.” Both firms will buy ARS from affected customers at PAR. Customers that sold their ARS under the par difference will be paid between par and the ARS sale price. This is the largest settlement in SEC history.

UBS and Citigroup are not admitting to or denying the SEC’s allegations by agreeing to settle. Both investment firms, however, have agreed to enjoinment from future violations.

The U.S. District Court for the Southern District of New York still needs to approve the settlements, and additional SEC penalties could still arise for UBS and Citi. The SEC is also waiting to finalize the settlements-in-principle it reached with Merrill Lynch, Bank of America, Wachovia, and RBC Capital Markets.

Related Web Resources:
SEC Finalizes ARS Settlements With Citigroup And UBS, Providing Nearly $30 Billion in Liquidity to Investors, SEC, December 11, 2008

SEC Complaint Against UBS (PDF)

SEC Complaint Against Citigroup (PDF)

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Posted In: Auction-Rate Securities , Citigroup , Financial Firms , SEC , UBS

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November 19, 2008

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183
Deutsche Bank 1-866-926-1437
Citi 1-866-720-4802
JP Morgan 1-866-450-8470
Goldman Sachs 1-888-350-2857
Merrill Lynch 1-888-706-1381
UBS 1-800-253-1974
Morgan Stanley 1-800-566-2273
Wachovia 1-866-283-794

Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
State Securities Regulators Remind Auction Rate Securities Investors to Contact Firms About Buyback Offers, NASAA, November 17, 2008

Small firms caught in ARS buyback vise, November 16, 2008

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Posted In: Auction-Rate Securities , Bank of America , Citigroup , Deutsche Bank , Financial Firms , Goldman Sachs , J P Morgan - Chase , Merrill Lynch , Morgan Stanley , NASAA , UBS , Wachovia

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November 13, 2008

Former UBS Executive Director Must Forfeit $15.81 Million in Illegal Profits and Serve 6 1/2 Year Prison Term for Insider Trading

In the U.S. District Court for the Southern District of New York, former UBS Securities LLC Executive Director Mitchell Guttenberg was ordered to forfeit $15.81 million in alleged illegal profits, as well as serve 78 months in prison. Guttenberg is accused of taking part in an insider trading scheme that generated millions of dollars for its participants. Earlier this year, he pleaded guilty to six counts of securities fraud and conspiracy.

Guttenberg allegedly sold material nonpublic data provided by UBS stock analysts regarding upgrades and downgrades before the information became available to the public. Tips included ratings change information about numerous stocks, including Whole Foods Market Inc, Amgen Corp, Caterpillar Inc., and Union Pacific Corp.

Trader David Tavdy, hedge fund manager Erik Franklin, and others allegedly paid Guttenberg for the information, as well as a share of their profits. Tavdy and Franklin, who are codefendants in the insider trading scam case, are among those who then passed on the data to other individuals.

Hundreds of trades took place because of the nonpublic data provided by Guttenberg. The trades resulted in over $15 million in illegal profits for the former UBS executive director, while others made over $17.5 million.

Guttenberg and 12 other individuals, mostly former employees at Morgan Stanley, Bank of America Corp, and Bear Stearns Co., Inc., were criminally charged for their involvement in the insider trading ring. Investigators say the participants tried to conceal their illegal actions by conducting meetings at restaurants, using disposable cellular phones, and coming up with coded text messages.

Related Web Resources
Ex UBS executive sentenced for insider trading news, Domain-B.com, November 4, 2008

Former UBS exec sentenced in NY, AP, November 3, 2008

Insider Trading Figure Gets 6.5 Years, MarketsMediaOnline.com, November 4, 2008

Insider Trading, SEC

Continue reading "Former UBS Executive Director Must Forfeit $15.81 Million in Illegal Profits and Serve 6 1/2 Year Prison Term for Insider Trading " »

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October 30, 2008

Former UBS AG Co-General Counsel David Aufhauser Agrees to Settle Insider Trading Charges for $6.5 Million

The New York Attorney General’s Office says it has reached a $6.5 million settlement agreement with former UBS AG co-general counsel David Aufhauser over insider trading charges. Aufhauser is also a former general counsel for the Treasury Department.

In the complaint, Attorney General Andrew Cuomo accused Aufhauser of selling his personal auction-rate securities holdings because of inside information he received regarding UBS’s crumbling auction-rate securities market.

Among other allegations included in the complaint, which the New York Attorney General filed in New York State Supreme Court on July 24, 2008:

• A UBS executive received an e-mail on December 14, 2007 from the company’s chief risk officer discussing potential problems with ARS.
• This same UBS executive then sent an email to his financial advisor saying that he wanted to get out of the ARS market.
• AT this executive’s request, the financial advisor sold $250,000 of ARS.
• Cuomo’s complaint identifies Aufhauser as the executive and accuses him of violating New York’s Section 352-c of the General Business Law when he allegedly used insider information to commit securities fraud.
• The complaint also alleges that Aufhauser was in breach of a duty owed to the source of the insider information.

As part of his $6.5 million settlement with New York State, Aufhauser’s payments will include his $6 million UBS discretionary incentive compensation and another half a million dollars. The former UBS attorney is also barred from the industry for two years and cannot practice law or serve as an officer or a director of any public company in the state off New York for two years.

The New York Attorney General’s complaint against Aufhauser is part of Cuomo’s ongoing probe into the ARS market collapse.

Related Web Resources:
Ex-UBS Counsel to Pay $6.5 Million to Settle Auction-Rate Trading Case, NY Times, October 8, 2008

Ex-UBS general counsel settles insider trading case, Newsday, October 8, 2008

Office of the Attorney General, State of New York

Continue reading "Former UBS AG Co-General Counsel David Aufhauser Agrees to Settle Insider Trading Charges for $6.5 Million" »

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Posted In: Insider Trading , Securities Fraud , UBS

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September 2, 2008

US Labor Department Wants Whistleblower To Show that Sarbanes-Oxley Act Covers UBS Financial Services

Whistleblower and former UBS Financial Services Senior Vice President Timothy Flynn has been asked to show that the UBS AG subsidiary falls under the federal whistleblower statute. According to Flynn’s attorney, The US Department of Labor made the request. The department is in charge of enforcing the Sarbanes-Oxley Act’s whistleblower protection for employees who report alleged wrongdoings that occur publicly traded companies.

While UBS AG is publicly traded, the labor department wants Flynn to show that subsidiary UBS Financial Services is integrated into the Zurich-based company and is therefore covered by the act. Flynn’s lawyer, however, says that when a whistleblower is employed by the subsidiary of a publicly traded company, the subsidiary, along with the entire company, is subject to the same securities laws.

Flynn filed his whistleblower complaint against UBS Financial Services last June. He alleges that after he told Massachusetts regulators that the company did not tell its advisors that there were liquidity issues brewing within the auction-rate securities market, UBS financial services retaliated by locking him out of his office, preventing staff members from interacting with him, and suspending him from his job.

Last May, UBS Financial Services said it would return $37 million to the Massachusetts Turnpike Authority and the state municipalities that invested in ARS. The repayments are part of the settlement the company reached with the Massachusetts Attorney General. The agreement was reached after Flynn, the broker for many of these clients, testified.

Related Web Resources:

Labor Asks Whistleblower to Show Why Act Covers UBS Subsidiary, Wall Street Journal, August 31, 2008

Ex-UBS broker sues, alleging firm retaliated, Boston.com, July 3, 2008

The Sarbanes-Oxley Act

Same broker tied investors to UBS, May 16, 2008

Continue reading "US Labor Department Wants Whistleblower To Show that Sarbanes-Oxley Act Covers UBS Financial Services " »

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Posted In: Auction-Rate Securities , UBS

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July 24, 2008

New York Attorney General Files Securities Fraud Lawsuit Against UBS

New York State Attorney General Andrew Cuomo filed a securities fraud lawsuit today against UBS AG related to what he is alleging was the firm’s fraudulent promotion of auction-rate securities as safe investments. He is reportedly seeking to make UBS offer to purchase back at face value approximately $25 billion in ARS instruments held by UBS clients in New York and across the United States.

Sources report that UBS is not the only entity that Cuomo may file charges against in the wake of his office’s investigation of auction-rate securities debacle. Thousands of investors have complained that they were told that the securities were like cash and would yield a little higher than a money market account.

Cuomo’s probe has focused on whether UBS and other investment firms notified investors of the risks involved with investing in auction-rate securities. He began his investigation in April when he subpoenaed 18 institutions. Since then, Cuomo has sent subpoenas to 100 individuals and 30 entities, including JP Morgan Chase & Co, Citigroup Inc., Goldman Sachs Group, Inc., and Merrill Lynch and Co.

Last week, UBS announced that it would repurchase up to $3.5 billion in tax-exempt auction rate securities from its clients. The plan includes packaging the securities and selling the new debt to money market funds. Cuomo announced today that this offer is not enough.

A UBS spokesperson said the firm plans to defend itself against the securities fraud charges.

Also today, the Texas securities regulator threatened to ban UBS from doing business in the state unless the investment firm repaid investors that bought auction-rate securities through the firm.

Related Web Resources:

UBS Faces New York Lawsuit Over Auction-Rate Sales, Bloomberg.com, July 24, 2008

Cuomo Sues UBS For Billions Over Securities Scandal, WNBC.com, July 24, 2008

Office of New York State Attorney General Cuomo

If you have lost an investment because of the misconduct or misrepresentation of a broker-dealer, contact Shepherd Smith Edwards and Kantas, LLP today.

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Posted In: Auction-Rate Securities , UBS

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July 7, 2008

Ex-Broker Files Whistle-Blower Complaint Against UBS Financial Services

Timothy P. Flynn, an ex-UBS broker, has filed a whistle-blower complaint. Flynn alleges that UBS Financial Services forced him to resign as part of the firm’s retaliation because he cooperated with regulators. Flynn, who sold $30 million in auction-rate securities to the Massachusetts municipalities, testified earlier this year at the request of Massachusetts Attorney General Martha Coakley. who was investigating the sale of auction-rate securities to Massachusetts municipalities.

Flynn told investigators that UBS had told its brokers that the auction-rate securities were safe alternatives to cash. Flynn claims that UBS shut him out of his office and work e-mail files soon after he gave testimony and he was told to resign or face termination.

In his lawsuit, Flynn alleges that UBS knew the market could be on the brink of collapse but kept telling brokers to inform customers that the securities were safe investments. He filed his whistle-blower complaint with the Occupational Safety and Health Administration in New York. The former broker’s lawyer says his client filed the complaint to preserve his reputation and enforce his rights.

As part of the firm’s settlement with Massachusetts municipalities, UBS agreed to purchase back some $37 million in auction-rate securities investments sold by UBS to the Massachusetts Turnpike Authority and 17 towns and cities. However, the Massachusetts Securities Division recently filed civil fraud charges accusing UBS of misrepresenting the risks involved with auction-rate securities and failing to disclose conflicts related to their sales. UBS plans to mount a defense against the charges.

The Wall Street firm also denies Flynn’s allegations and says that he resigned without being prompted by anyone to do so. The firm says it will defend itself against the ex-broker’s allegations.

The stockbroker fraud law firm of Shepherd Smith Edwards and Kantas, LLP represents not only investors with complaints against brokerage firms, but we also represent brokers against their former firms. Ask for your free consultation today.

Related Web Resources:

Ex-UBS broker files whistle-blower complaint, Boston.com, July 3, 2008

Massachusetts Securities Division

Office of the Massachusetts Attorney General

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Posted In: Auction-Rate Securities , UBS

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June 30, 2008

Massachusetts Commonwealth Secretary William Galvin Sues UBS for Fraud

Commonwealth of Massachusetts Secretary William Galvin is suing UBS because it says the investment firm pushed auction-rate securities onto investors in an effort to minimize its own losses. In his complaint, the state’s head securities regulator cited fraud as grounds for the lawsuit.

Galvin cites several e-mails that indicate that UBS told its sales team to aggressively sell the notes to as many investors as possible after the firm realized that the $300 billion auction-rate securities market was in trouble and there were beginning to be more people selling than buying.

One e-mail, dated December 15, indicates that UBS’s wealth management unit held $33 billion of the auction-rate securities and that the firm had underwritten $43 billion of the market’s securities. Galvin says UBS engaged in a “comprehensive and deliberate” strategy to minimize their inventory.

UBS Global Head David Shulman is identified in the complaint as pushing employees to find more clients to purchase auction-rate securities even though he sold his entire personal stake. The Massachusetts regulator wants UBS to buy investors out for the same prices they paid for the risky instruments and compensate investors that have sold their stakes for any losses.

UBS plans to defend itself against Galvin’s allegations. A company spokesperson says the firm is working on solutions to the frozen market that has kept so many shareholders locked into shares that were supposed to be as liquid as cash.

While some issuers, such as John Hancock and Eaton Vance have managed to get their investors out of the frozen market, UBS and many other Wall Street Firms have only been able to let clients borrow against their holdings’ value.

Please contact Shepherd Smith Edward and Kantas, LLP if you believe that broker misconduct or negligence caused your investment loss. Our stockbroker fraud lawyers have helped thousands of investors recover their losses.

Related Web Resources:

Galvin charges UBS with fraud, Boston.com, June 26, 2008

E-Mail That Investors Might Like to Read, New York Times, June 29, 2008

UBS

William Francis Galvin, Secretary of the Commonwealth

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Posted In: Auction-Rate Securities , UBS

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Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

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UBS and Citigroup to Pay Nearly $30 Billion to Tens of Thousands of ARS Investors

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

Former UBS Executive Director Must Forfeit $15.81 Million in Illegal Profits and Serve 6 1/2 Year Prison Term for Insider Trading

Former UBS AG Co-General Counsel David Aufhauser Agrees to Settle Insider Trading Charges for $6.5 Million

US Labor Department Wants Whistleblower To Show that Sarbanes-Oxley Act Covers UBS Financial Services

New York Attorney General Files Securities Fraud Lawsuit Against UBS

Ex-Broker Files Whistle-Blower Complaint Against UBS Financial Services

Massachusetts Commonwealth Secretary William Galvin Sues UBS for Fraud

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