UBS Auction Rate Securities

UBS AG is one of the world's most prominent financial institutions; as the second largest bank in Europe and possibly the largest wealth asset managing firm in the world, UBS is undoubtedly a major player in financial markets around the globe. UBS also has a significant presence in U.S. financial markets, including investment banking, retail banking, and asset management.

Historical Overview

The modern company known as UBS was formed by a merger between the Union Bank of Switzerland and the Swiss Bank Corporation in 1998. The subsequent purchase of U.S. stockbroker PaineWebber made UBS one of the largest wealth management companies in the world.

The name "UBS" was originally a holdover acronym from the Union Bank of Switzerland, but has since become the company's official brand, though it is no longer considered a true acronym.

UBS Participation in the Auction Rate Securities Market

According to UBS' website, its clients may purchase two types of auction rate securities (ARS) through the company: auction rate certificates (bonds with long-term maturities) and auction rate preferred stock (ARPS).

Like many other major financial institutions, UBS' role in the ARS market was that of a broker-dealer, and is thus multi-faceted. It acted as underwriter for initial ARS offerings, auction dealer for securities issuers, agent for investors who wished to place bids or buy/sell orders on the market, and an investor on its own behalf. Under typical broker-dealer agreements, UBS was allowed to bid in its own auctions, and, like many investment banks, frequently chose to do so in order to ensure the success of an auction. UBS' decision to pull out of the ARS market in February 2008 was, along with the actions of similar firms, a major catalyst of the market collapse.

UBS Auction Rate Securities Fraud Allegations

Because of the many roles played by UBS in the ARS market, the company dealt with many conflicting interests at the same time. By late 2007, however, internal emails show that self-interest had come to the forefront.

According to documents recovered by the Massachusetts Secretary of State's Office as part of an investigation into UBS' business practices in the auction rate market, UBS executives were well aware of trouble in the ARS market in late 2007. Furthermore, because of its own ARS holdings accumulated through bidding in its own auctions over the years, UBS had high risk exposure to the possibility of a market crash. The declining ratings of auction rate securities bond insurers was also a significant cause of concern.

As the emails showed, UBS' solution to the problem was to unload its risky auction rate holdings onto unsuspecting customers. This was accomplished through an aggressive campaign to market ARS to investors as safe, liquid, cash-equivalent investments – things which UBS allegedly knew were untrue. Many investors, however, believed the statements made by UBS and other investment firms, allowing UBS to reduce its holdings in the shaky market.

In the wake of the auction rate securities market collapse, UBS is one of several firms under fire for its allegedly fraudulent business practices in the ARS market. Many investors have claimed that UBS staff never informed them of the possible liquidity risks associated with auction rate securities, and in fact recommended auction rate securities to investors whose intent to purchase only safe, liquid, risk-free investments was both clear and explicit.

Evidence that UBS knew about problems with the auction rate market but deliberately failed to alert investors has also been damaging; as a result, the firm was the first to be charged with fraud in connection to the beleaguered ARS market.

UBS Auction Rate Securities Lawyer

If you were or are a customer of UBS and have lost money and/or liquidity, seeking FINRA arbitration with the assistance of an experienced auction rate securities attorney may be the quickest and most efficient way to retrieve your funds and claim your rightful compensation. Call a UBS auction rate securities fraud lawyer at 800-220-9341 today to learn more.