Massachusetts authorities have sued two subsidiaries of Swiss bank UBS with fraud, saying they misled investors about the safety of auction-rate securities, according to various media reports.

The latest legal action adds to the woes of the Zurich-listed bank, already under the spotlight after a former UBS senior banker, Bradley Birkenfeld, pleaded guilty to helping clients evade US taxes. The bank is also battling to restore its financial health after suffering more than $37 billion in credit market write-downs.

In the complaint, top state securities regulator William Galvin accused UBS Securities and UBS Financial Services of aggressively selling the investments to customers at a time when a top executive from the bank was dumping them from his personal holdings and large money managers were losing faith in them.

This is probably the first litigation in the auction-rate securities scandal, Mr Galvin was quoted by the news service Reuters as saying in an interview.

"They were clearly taking advantage of customers to provide a benefit to the company," he said, "and that is what makes this a more significant ongoing fraud".

The $330 billion (£166 billion) auction rate securities market became the latest victim in the global credit crisis when liquidity dried up in February, leaving investors stuck with the instruments while issuers were forced to pay high rates.

The 101-page lawsuit says UBS presented the securities as being as safe as money market funds, while failing to inform investors about potential risks or that it was manipulating the auctions.