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UBS to Spend $19.4 Billion to Buy Back Securities


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 solution.”

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 Turnpike Authority.

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 the S.E.C.

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.
 

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