SEC and State Regulators Probe Whether UBS Played a Role in Auction-Rate Securities Collapse

The Boston Globe says it has reviewed documents that indicate that UBS Financial Services continued selling municipal bond investments without warning clients of the risks even though the firm already knew that trouble was brewing. Yet when the $330 billion auction-rate securities market shut down in February, UBS brokers expressed surprise at the collapse.

This lack of disclosure is in contrast to UBS’s dealings with some of its bigger clients. The investment bank reportedly advised them of the pending problems at least three months before all trading ended. All this indicates that there is a possibility that UBS played a bigger part in the auction-rate securities collapse than it has owned up to, and the Securities and Exchange Commission and New Hampshire and Massachusetts regulators are investigating this matter-in addition to trying to determine whether UBS did in fact mislead investors.

UBS has acknowledged that it did not give some investors enough warning, and it has refused to explain why it warned other clients about the auction-rate securities risks. If only one side of UBS did in fact know about the upcoming auction-rate securities crisis and did not warn the other side, securities attorneys say that the investment firm could be in legal hot water.

In a settlement with Massachusetts Attorney General Martha Coakley, the firm is paying back $37 million in auction-rate securities to the Massachusetts Turnpike Authority and 18 Massachusetts cities and towns. A UBS spokesperson says that the company is also offering clients cash loans while using the investments they can’t access as collateral.

One investor, 73-year old New Hampshire resident Richard Stahl, says he has $650,000 that is frozen in auction-rate bonds. He claims that UBS did not tell him that he was dealing with the risk of “failed auctions.” He is now unable to sell his municipal bonds. Stahl says that he has asked UBS to repay him, but he received a letter from UBS Assistant General Counsel Kenneth A. Christie rejecting his request.

If you believe you lost money because a broker-dealer did not warn you of the potential risks associated with your investment, contact Shepherd Smith and Edwards today.

Related Web Resources:

Wall St. firm told only some about risk,, June 9, 2008
Auction-Rate Securities Practices and Procedures, UBS
Holders of Auction-Rate Debt Have Choices, but Few Solutions, Wall Street Journal, June 12, 2008

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