UBS Will Buy Back Auction Rate Securities for $19.4 Billion

UBS Will Buy Back Bonds for 19.4 Billion
By Beth Healy
August 8, 2008
Boston Globe

State and federal regulators have reached a $19.4 billion agreement with UBS Financial Services Inc. to settle charges that the firm misled investors into buying bonds that were far riskier than advertised, according to people briefed on the talks.

The deal would require the Swiss bank to buy back the investments, called auction-rate securities, which were widely sold on Wall Street as safe and cash-like until the $330 billion market collapsed in February. The firm also agreed to pay $150 million in fines, split between Massachusetts and New York.

The settlement is scheduled to be disclosed this morning by state regulators and the US Securities and Exchange Commission.

The UBS deal is the largest so far in the nationwide investigation of these investments, which have trapped thousands of investors and caused havoc among student lenders and nonprofits. The firm was facing fraud charges brought by Massachusetts Secretary of State William F. Galvin, who led the UBS investigation, and by New York Attorney General Andrew M. Cuomo. Galvin alleged that top UBS executives knew the auction-rate market was failing but did not inform many customers.

The firm has also paid about $40 million to settle findings by Massachusetts Attorney General Martha Coakley that it illegally sold auction-rate bonds to 21 towns and cities and the Massachusetts Turnpike Authority.

UBS declined to discuss the settlement talks but said in a statement, "We are consistently working with regulators toward a comprehensive solution for all auction-rate investors."