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UBS agrees to pay $1m to Mass.

Suit over auction securities pending

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Bloomberg News / July 31, 2008

NEW YORK - UBS AG agreed to pay Massachusetts $1 million to settle an investigation by Attorney General Martha Coakley into the marketing of auction-rate securities to 20 towns and public agencies in the state.

The payment follows a May agreement between the Zurich-based bank and the attorney general to return nearly $37 million to 17 towns and cities that invested in the securities, as well as to the Massachusetts Turnpike Authority. In addition to paying the state $1 million, UBS also will repay a total of $3.4 million to the towns of Norwood and Southborough and the cities of Fall River and Woburn.

"We are pleased with the results in this case," Coakley said in a news release. "Our primary interest was to promptly return to these towns and cities the investment monies they placed with UBS."

Coakley in February began investigating whether UBS misled governments by selling them securities that weren't a "permissible investment" under state law. Karina Byrne, a spokeswoman for UBS in New York, said the planned payments represent "the final step in the resolution of this matter."

The $330 billion market for auction-rate securities - long-term bonds with rates that reset every week or month - imploded in February as investors and dealers grew concerned the credit quality of companies that insure most of the debt might falter. Investors were left unable to sell.

Coakley's probe is separate from a civil suit filed by Secretary of State William Galvin, who last month accused UBS of fraud in the sale of auction-rate securities. Galvin alleged UBS boosted efforts to sell the securities even as it knew the market for them was collapsing. Galvin also said UBS told investors that the long-term bonds were cash equivalents when the bank knew they weren't.

New York Attorney General Andrew Cuomo also sued UBS last week over its marketing of auction-rate bonds.

Globe staff contributed to this report.

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