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N.Y. sues UBS over auction securities

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Bloomberg News / July 25, 2008

UBS AG was sued yesterday by New York Attorney General Andrew Cuomo, who alleged it was fraudulent for the Zurich bank to promote auction-rate securities as safe, money market-like investments.

Cuomo is seeking to force UBS to offer to buy back at face value $25 billion in auction-rate securities held by the bank's customers in New York and nationwide. Massachusetts and Texas have filed similar complaints against UBS since the $330 billion market collapsed in February, in an effort to force the firm to repurchase securities it marketed in their respective states.

"We believe we have nationwide jurisdiction and we're looking for recoveries nationwide," Cuomo said yesterday at a press conference in New York disclosing the lawsuit. He said his investigation into UBS and other banks that sold auction-rate securities is continuing and he declined to rule out additional complaints or criminal charges.

In June, Massachusetts Secretary of State William F. Galvin brought an action against UBS alleging that high-level UBS executives knew as early as last fall that the auction-rate market was on the brink of failure, but did not warn its brokers or individual customers of that looming trouble. Rather, the firm continued to offer the investments as safe.

The Boston Globe has reported that UBS warned large institutional clients, like nonprofit student lenders and the state treasurer's office, that the market was at risk of collapsing early this year - at the same it was still selling auction-rate bonds to smaller customers.

UBS spokeswoman Karina Byrne in an e-mailed statement said the bank will "vigorously defend" itself against the allegations in the suit.

Globe reporter Beth Healy contributed to this report.

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