Mass. says UBS offered illegal favors

Massachusetts Secretary of State William Galvin has accused UBS AG of providing hedge fund traders with favors intended to win brokerage business for the investment bank.

The favors allegedly included below-market rent for leased office space, low-interest personal loans, and tickets to Red Sox baseball games.

Galvin filed an administrative complaint today, accusing UBS of running a ‘‘hedge fund hotel’’ catering to hedge fund traders. The alleged arrangements create a conflict that hurts investors who are unaware the funds may be paying higher than normal brokerage fees to UBS in exchange for the favors, Galvin said.

‘‘Unbeknownst to the pension funds, university endowments, charitable foundations, institutional investors and individuals who invest in hedge funds, the gifts and gratuities for the hedge fund advisers come with implicit and sometimes explicit quid pro quos,’’ the complaint states.

‘‘UBS requires the hedge fund advisers to cause the hedge funds they manage to meet certain benchmarks of profitability for UBS or ensure they do not use other prime brokers.’’

Galvin brought the case more than six months after initially disclosing his investigation to determine whether hedge funds were paying higher than normal brokerage fees to compensate the investment bank for office space.

A spokeswoman for UBS in New York declined to comment.

The complaint seeks a cease-and-desist order, a censure, and an administrative fine.
(AP)