August 9, 2008
BOSTON (AP) — The Swiss bank UBS has reached a $19.4 billion agreement
to buy back bonds in the biggest settlement yet over claims that banks
misled investors to buy auction-rate securities, the Massachusetts
secretary of state’s office said Friday.
The agreement has been reached between UBS Financial Services and the
Securities and Exchange Commission and regulators in several states,
including Massachusetts and New York.
Brian McNiff, a spokesman for the secretary of state, William F. Galvin,
said an official announcement might not come until Monday. The deal was
first disclosed in The Boston Globe.
Auction-rate securities have interest rates set periodically, depending
on submitted bids. The securities were once considered safe, but
investors’ finances were frozen after the market for them collapsed in
February because of turbulence in the credit markets.
In a June lawsuit accusing UBS of fraud, Mr. Galvin said the company
knew last fall that the market was in serious trouble and warned its
larger clients, including the state treasurer’s office. But he said it
did not tell its brokers or smaller customers, and continued to push the
securities with “profoundly deceptive sales practices” in a scheme
intended to reduce its own exposure to the market.
As part of the deal, UBS customers with less than $1 million in
auction-rate securities will get their money back by Oct. 31, while
others will get their refund by Jan. 1, Mr. McNiff said. UBS also agreed
to pay $150 million in fines, to be divided between Massachusetts and
New York, he said.
A UBS spokesman, Kris Kagel, did not comment on the deal, but said, “We
are consistently working with regulators toward a comprehensive
The deal is the latest, and by far the largest, in a string of
settlements involving state officials.
In May, UBS agreed in a settlement with the Massachusetts attorney
general, Martha Coakley, to buy back $37 million in auction-rate
securities sold to Massachusetts cities and towns and the Massachusetts
Then in August, UBS agreed to pay state authorities $1 million to settle
claims that it had sold auction-rate securities to local agencies in
violation of Massachusetts law.
News of the UBS deal comes a day after Citigroup agreed to buy back more
than $7 billion in auction-rate securities and pay $100 million in fines
as part of settlements with federal and state regulators.
Also Thursday, Merrill Lynch agreed to buy back an estimated $10 billion
in auction-rate securities from its clients over a one-year period
beginning Jan. 15, 2009.
In a related case, the Bank of New York Mellon Corporation said Friday
in a regulatory filing that the S.E.C. was investigating the sale and
purchase of auction-rate securities.
Bank of New York Mellon said in the filing it was fully cooperating with
During the course of reviewing customer accounts at Mellon Securities,
Bank of New York Mellon said it had found employees at Mellon Securities
failed to comply with execution and regulatory requirements in
connection with auction-rate securities.