Ex-UBS broker sues, alleging firm retaliated
A former UBS broker who sold $30 million in auction-rate securities to Massachusetts towns and cities has filed a whistle-blower lawsuit against the Wall Street firm, alleging it retaliated against him for cooperating with regulators and forced him to resign.
In a complaint filed with the US Department of Labor in New York, Timothy P. Flynn alleged UBS Financial Services Inc. locked him out of his office and shut off his e-mail access shortly after he provided testimony for state Attorney General Martha Coakley's investigation of the firm in the spring. UBS settled with Coakley's office in May, agreeing to buy back $37 million in investments sold by Flynn and others at UBS to 17 towns and cities and the Massachusetts Turnpike Authority.
UBS spokesman Kris Kagel said, "The firm has taken no improper actions against Mr. Flynn. Mr. Flynn made the decision to resign of his own volition. UBS therefore denies the allegations in his claim and plans to defend itself vigorously."
According to Flynn's complaint, he agreed to speak with the attorney general after receiving a request in March. At an April 16 meeting, he told investigators UBS had led its brokers to believe that auction-rate securities were cash alternatives, similar to money markets.
Auction-rate securities are bonds issued by municipalities and nonprofits, such as student lenders. The market for the bonds shut down in February, when there were more sellers than buyers and UBS and other firms stopped using their funds to support trading. As a result, individuals, companies, and small-town treasurers were left with an estimated $220 billion stuck in securities they had been told were as safe as cash.
According to the complaint, "Flynn's testimony implicated UBS in a fraud perpetrated upon not only UBS employees but also UBS clients."
His testimony foreshadowed the fraud suit filed by the Massachusetts Securities Division last week against the firm, alleging UBS misrepresented the risks of auction-rate securities to customers and failed to disclose its conflicts in selling them. UBS said it would defend itself against the allegations.
Immediately following Flynn's testimony, a UBS lawyer offered to settle the case, according to Flynn's lawyer, Jason A. Archinaco, in Pittsburgh. At the time of the settlement, on May 7, UBS said it agreed to reimburse the cities and towns, as well as the Turnpike Authority, because state law bars those entities from putting short-term cash in anything but the safest accounts.
Flynn, 42, had worked at UBS since March 2006, according to his broker record, and was a senior vice president. After the settlement, the complaint alleges, he was twice locked out of his Manhattan office and told not to communicate with his many municipal clients in Central Massachusetts. By early May, his hard drive was taken from his computer and his access to client files was restricted, the complaint says. He was ultimately suspended, the complaint says, then told he had to resign, or face being fired.
In May, when the Globe first wrote about Flynn, the firm refused to say whether he was being disciplined. A friend of Flynn's at the time said in an interview that Flynn's superiors were not communicating with him in the days following the attorney general's announcement.
Flynn had informed his UBS superiors ahead of the meeting, in an April 2 e-mail, that he intended to cooperate with the attorney general, the complaint says. He lamented the difficulties he was facing with clients in light of the frozen auction-rate market: "Day by day, I am watching a niche market and my credibility deteriorate."
The lawyer for UBS, Kerry A. Zinn, responded to his note and in closing said, "I do not believe e-mail is an appropriate forum or vehicle for memorializing these discussions."
Beth Healy can be reached at bhealy@globe.com.
Correction: Because of a reporting error, a story in yesterday's Business section about a former UBS broker filing a lawsuit against the firm misspelled his lawyer's name. It is Jason Archinaco.
