Last week, the Massachusetts Securities Commission filed administrative proceedings against UBS Financial alleging that it defrauded its investors (and its own brokers) in connection with its sales of auction rate securities.
Of course, the Commission's complaint are only allegations, thus far unproven, and UBS has not yet responded to the compliant. However, if true, the allegations are serious, and provide significant insight into a corporate mindset at UBS which put its profits ahead of the well being of its customers, and its own employees.
At the same time, a brokerage firm is a business, and one of its businesses is buying and selling securities, often from its own inventory. However, the allegations of the complaint, and a reading of the emails, is a cause for concern.
Again, these are only allegations, and nothing has been proven, but the Commission alleges that UBS made material misrepresentations to its customers, and its brokers, regarding auction rate securities, and the viability of the entire concept. According to the Complaint, UBS senior management knew that the auctions were in trouble in late 2007, and embarked on a campaign to decrease its position in the securities, by selling those securities to their own customers, without disclosure of any of these issues to those customers.
These allegations will have a huge impact on the pending arbitrations that have been brought over auction rate securities, and on the untold number of cases that are being contemplated by law firms across the country. The allegations will have a significant impact for any customer who purchased the securities from UBS in 2008, as well as for the brokers who sold those securities.
The complaint is 110 pages long, and contains numerous attachments, of internal emails, is worth the time to review. The Commission has the complaint online, along with the exhibits.
