UBS Exec Admits Bank’s Sham Tax Shelters Broke U.S. Law

UBS exec admits bank’s sham tax shelters broke U.S. law - Financial Week: "UBS admitted it broke U.S. law in setting up sham offshore tax shelters for wealthy Americans and agreed to work with U.S. authorities in reviewing 19,000 accounts to identify clients who may have committed tax fraud.

“Our compliance system had failures, and misconduct appears to have occurred,” Mark Branson, chief financial officer of UBS’s global wealth management unit, told a Senate panel today. “It is apparent now that our controls and supervision were inadequate.”"

Need we say more?

One interesting point in the article - offshore tax abuses cost American Taxpayers- $100 BILLION a year. How about we forget about raising income taxes, lifting the Social Security cap, and focus on this fraud - we could actually lower the income tax if Congress would simply close the reported $345 BILLION dollar gap in reported earnings vs. actual earnings.

NY AG sues UBS for Securities Fraud

I have not seen the complaint yet, but according to the AP story, the complaint is similar to the one brought last month by the AG's office in Massachusetts.

The interesting part of this story is that the the NY AG - Andrew Cuomo is quoted as saying " UBS is not alone in this scheme." "We are looking at a number of other banks."

The AP is also reporting that investigators said they had identified several UBS employees who sold $21 million of their personal stakes in the market in the months leading up to its collapse, the lawsuit does not target individual executives. The story implies, but does not say, that the employees were selling their own auction rate securities, which if true, would be a severe blow to UBS.

The original UBS - Massachusetts post is here.

NY AG sues banking giant UBS for securities fraud:

Brokers Target of Criminal Investigation in ARS Scandal

First the State of Mass. went after UBS. Now Federal prosecutors are investigating whether two former Credit Suisse Group brokers lied to investors about how they placed their money into short-term securities.

Obviously the ARS issue is a hot topic, but I am concerned at the attempt to criminalize the conduct of individual brokers, when it appears that the ARS marketplace was as close to a fraud as one could imagine. Just read the emails that are attached to the UBS Complaint annd it becomes clear, assuming of course that the emails are accurate, that 1)the firms knew that the ARS market was collapsing in late 2007, and 2) they pushed brokers to move the securities out of the firm's inventory to its retail customers.

It is quite a stretch to hold the retail broker liable for the ARS debacle, as brokers are relying on their firms for the details of the securities that they sell. The rumors are that the brokers told their customers that the underlying securities were student loans, when in fact they were CDOs. The WSJ is making a big deal about that distinction, but IMHO, that is insignificant. Granted, CDOs carry more risk than student loans, but if that is the fraud, then prosecutors are going to walk away without a conviction, since the underlying securiteis are not in default, it is the auctions that failed, and those auctions failed regardless of the nature of the underlying paper.

OTOH, depending on how savvy the investor is, that distinction might just be material. I have a hard time believing that the average Joe, parking cash in an ARS knew or was concerned about the underlying paper, and therefore the elements of materiality and reliance would be missing from the criminal case.

Are we again going to see brokers taking the heat for a firm's fraud? Too many brokers were destroyed in the research scandal, and many fear the outlash against brokers for this debacle....even though most brokers who were involved with these securities knew as much about the underlying problems as their customers knew.

Of course, at issue is the $330 billion market for "auction rate" securities, which have now become illiquid.

UBS Charged With Fraud in Auction Rate Securities

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.