UBS Defends Itself Against New York Lawsuit

Matthew Smith

25 July 2008

Conflict between Zurich-based bank UBS and US lawmakers intensified following a lawsuit lodged by the New York Attorney General claiming the firm sold clients into illiquid securities at the same time as executives within the firm were dumping holdings of the very same security.

UBS responded to the charge, saying: “It is frustrating that the New York Attorney General has filed this complaint while we have been fully engaged in good faith negotiations with his office.”

UBS admitted it had found cases of “poor judgement by certain individuals”, and that it was evaluating appropriate disciplinary measures in relation to the movement of Auction Rate Securities inventory from the firm’s own books and into private client accounts.

The firm said it had conducted its own internal investigation with the assistance of external counsel on sales of personal holdings of ARS, but it said it hadn’t found cases of illegal conduct by any employee.

“We will vigorously defend ourselves against this complaint,” UBS said in a statement.

Attorney General Andrew Cuomo said at a New York press conference his office had subpoenaed emails detailing how UBS senior executives dumped $21 million in personal holdings as the market collapsed but continued pushing the securities to customers.

Previously both Texas and Massachusetts state regulators had filed similar complaints against UBS following the $330 billion market collapsed earlier this year in an effort to force the firm to repurchase the securities it marketed.

Press reports said Mr Cuomo is seeking to force UBS to offer to buy back at face value $25 billion in auction-rate securities held by UBS customers in New York and nationwide.

“Not only is UBS guilty of committing a flagrant breach of trust between the bank and its customers, its top executives jumped ship as soon the securities market started to collapse, leaving thousands of customers holding the bag,” said Mr Cuomo.

“Today we bring the first nationwide lawsuit against UBS, seeking to recover billions of dollars for customers and sending a resounding message to the rest of the industry that this type of deceptive behavior will not be tolerated.”