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Massachusetts Securities Division Files Complaint UBS Financial Services In Connection With the Sale of Auction Rate Securities

The Massachusetts Securities Division , Enforcement Section filed a Complaint in order to commence an adjudicatory proceeding against UBS Financial Securities and UBS Financial Services for violating the Massachusetts Uniform Securities Act in connection with UBS’s sale of financial instruments known as auction rate securities ("ARS") to retail and other customers.

These sales were typically made with the express representation that they were liquid, safemoney-market instruments, that their interest rates would reset at periodic auctions based on the bids submitted by market participants, and that they could be sold at the next auction.

The actual reality, well known to UBS but undisclosed to its customers, was that in fact, no true auctions existed for many of these securities. In addition to not disclosing the true nature of the so-called auctions of these securities and UBS’ role in those auctions, UBS also did not disclose to customers the conflicts of interest that UBS experienced in its dual role in underwriting these securities and selling them to clients.

The Enforcement Section seeks an order (a) requiring UBS to permanently cease and desist from committing any further violations of the Act and Regulations, (b) requiring UBS to offer rescission of sales of ARS at par (or restitution to investors who have already sold these instruments below par) on the terms and conditions that a Hearing Officer deems appropriate, (c) censuring UBS, (d) requiring UBS to pay an administrative fine in an amount and upon such terms and conditions as a Hearing Officer may determine, and (e) requiring UBS to take any other action that a Hearing Officer may deem appropriate in the public interest and necessary for the protection of Massachusetts investors.

This case highlights a conflict of interest that arose between UBS and its customers and the devastating effect that such conflict had on those customers, who were not apprised of the conflict and how it was affecting UBS' actions. It also revolves around UBS' profoundly deceptive sales practices with respect to ARS.

Beginning in mid-February 2008, the Division began receiving scores of telephone calls from shocked and outraged customers of UBS Financial Services who were sold instruments that they were told were safe and liquid. These instruments were often pitched to clients as money-market instruments or cash alternatives. However, in February 2008, the ARS Markets failed and these securities became worthless.

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• UBS Auction Rate Complaint, Commonwealth of Massachusetts (PDF)