UBS Financial Services Inc. and UBS Securities LLC, both units of UBS AG, have agreed to pay 19 Massachusetts public agencies and local governments over $35 million for their losses in the auction-rate securities market. The sum represents the return of principal payments by the municipalities.
The settlement agreement follows a probe by the Massachusetts Attorney General’s Office into accusations that the two UBS units misled the local entities by convincing them that the investments were low-risk enough that they were allowable for towns and cities under Massachusetts law.
According to a UBS spokesperson, the investment bank agrees that the auction-rate securities investments are not in fact permissible under this law. The spokesperson said that the repayment and agreement with the Massachusetts entities only apply because of this specific law.
Local US governments throughout the United States have invested over $300 billion in auction-rate securities markets. Auction-rate securities investments were once considered “safe.” These investments, however, have been frozen for months because of insufficient market liquidity-their value dropping as a result.
Many holders have been unable to get rid of their securities because of inevitable losses. The agreement between UBS and the Massachusetts entities allows the municipalities to recover their frozen funds.
UBS has had to note down over $37 billion in bad investments ever since the start of the subprime mortgage crisis.
Related Web Resources:
UBS to return $35M to Massachusetts governments, agencies in settlement over risky investments, International Herald Tribune, May 7, 2008
UBS to return $35 mln to US state over investments, AFP, May 8, 2008
UBS Financial to return $37M to cities, towns, MTA, Massachusetts Municipal Association, May 7, 2008