Attorney General Cuomo Announces Settlement With Ubs To Recover Billions For Investors In Auction Rate Securities

NEW YORK, NY (August 8, 2008) - Attorney General Andrew M. Cuomo today announced a landmark agreement with UBS Securities LLC and UBS Financial Services, Inc. (collectively, “UBS”) to return over $11 billion to investors across New York State and the nation. Today’s agreement will settle the lawsuit Cuomo filed on July 24, 2008 charging UBS with misrepresenting auction rate securities to investors as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.

Today’s agreement with UBS comes just one day after Cuomo settled similar allegations against Citigroup. The two settlements together provide relief to approximately 80,000 investors who were left holding nearly $20 billion worth of securities they could not sell after the widespread failure of the auction rate securities market this past February.

“Today’s multi-billion dollar agreement is a turning point for investors seeking relief from the collapse of the auction rate securities market,” Cuomo said. “The industry is beginning to take responsibility for correcting a problem they created, and that’s a good thing. The fundamental goal has been to return money into the hands of investors, and that’s what this deal does.”

Significantly, Merrill Lynch, which has also been the subject of an investigation by the Attorney General, yesterday also announced a voluntary buy-back of illiquid auction rate securities from its retail investors. While this offer represents a welcome change in approach in response to the Attorney General’s efforts to make investors’ whole, Merrill Lynch's buy-back program fails to contain certain investor protection safeguards that are part of the UBS and Citigroup programs and is under further review by the Attorney General.

From the beginning of his investigation into the auction rate market, the Attorney General’s objective has been to bring relief to investors stuck with illiquid auction rate securities. Citigroup, UBS, and Merrill are the three largest participants in the auction rate securities market, and among them are responsible for more than half of all auction rate securities owned by investors. The settlements with Citigroup and UBS accomplish precisely the kind of relief investors have demanded, and deserve.

Under Cuomo’s settlement, UBS has agreed to buy back, no later than January 2, 2009, all illiquid auction rate securities from all UBS retail customers, charities, and small to mid-sized businesses. These customers, who number approximately 40,000 nationwide, have been unable to sell their securities since February 13, 2008. Their securities are worth more than $11 billion. The settlement requires UBS to accomplish the buybacks for retail customers with less than $1 million on deposit, including charities, by October 31, 2008.

UBS will also:

  • Fully reimburse all retail investors who sold their auction rate securities at a discount after the market failed

  • Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds

  • Undertake to expeditiously provide liquidity solutions to all other institutional investors

  • Reimburse all refinancing fees to any New York State municipal issuers who issued auction rate securities through UBS since August 1, 2007.

As part of the settlement, UBS will pay to the State of New York a civil penalty in the amount of $75 million. UBS will also pay a separate civil penalty of $75 million to the North American Securities Administrators Association (“NASAA”), whose ARS Task Force has been conducting its own series of investigations into the marketing and sale of auction rate securities by broker-dealer firms.

The Attorney General thanked NASAA and its multi-state ARS Task Force, who joined the Attorney General in announcing the agreement, for their efforts in achieving today’s settlement. The Attorney General also thanked the enforcement staff of the Securities and Exchange Commission for their contribution in bringing about today’s settlement.

Assistant Attorneys General Pamela Mahon, Christopher Mulvihill and Ethan Zlotchew, conducted the UBS investigation along with Assistant Attorney General Armen Morian and Kitty Kay Chan, Economist for the Division of Economic Justice, all under the supervision of David A. Markowitz, Chief of the Investor Protection Bureau, and Eric Corngold, Executive Deputy Attorney General for Economic Justice.

sitemap Intergov foil PressOffice RegionalOffices SolicitorGeneral AppealsandOpinions ConvictionBureau CrimPros OCTF MFCU PublicIntegrityInvestigations TaxpayerProtection Antitrust ConsumerFrauds Internet InvestorProtectionRealEstateFinance CharitiesCivilRightsEnvironmentHealthCareLaborTobaccoCivilRecoveriesClaims Litigation RealPropertySOMB BudgetLegalRecruitmentHuman Resources Bureau