New Hampshire's securities regulator accused UBS of defrauding the state's leading issuer of student loans, in a scandal that prevents the agency from raising $70 million to fund 6,500 loans.

The New Hampshire Higher Education Loan Corp had issued auction-rate securities as a low-cost way to fund its operations, but the $330 billion market collapsed in February.

New Hampshire's Bureau of Securities Regulation said UBS had urged the agency to keep issuing the debt even though it knew the market was on the verge of collapse.

A number of US states including Massachusetts and New York began investigating auction-rate securities after the $330 billion market seized up in February as the global credit crisis spread.

In separate deals with New York state, UBS and US bank Citi have agreed to buy back billions of dollars of the securities from investors.

The Texas securities commissioner said this week that US and state regulators were close to settling with other banks accused of mishandling sales of auction-rate securities.

This case is different because it focuses on the student loan agency which issued auction rate securities in order to raise capital that it then loaned to families. The other probes focused on how UBS targeted investors directly to put their money into these securities.

For years, rates on auction-rate securities were reset at weekly or monthly auctions, which drew investors looking for returns slightly better than money market funds. But on 13 February, auction markets shut down, as trouble in the credit markets spooked investors and Wall Street's giants all decided to stop supporting the trades.