UBS to return $37 million to Mass. communities

Attorney General Martha Coakley's office today reached a $37 million agreement with UBS Financial Services Inc., requiring the Wall Street firm to return funds to the Massachusetts Turnpike Authority and 17 municipalities that it allegedly misled into buying auction-rate securities.

Auction-rate securities are a kind of debt that allowed nonprofits to borrow money at low rates. But these securities relied on weekly or monthly auctions, where investors re-upped their holdings, and those auctions broadly failed in February, leaving investors stuck with illiquid investments they had expected to work like cash.

Coakley said cities and towns were, in some instances, persuaded by UBS to invest their cash accounts in these auction-rate securities. And with the market's collapse, those municipalities have had portions of their cash locked up since February.

“We appreciate that UBS has taken action to return the invested monies to our cities, towns and other government entities. In these tight financial times, Massachusetts municipalities need to have access to their monies and to invest them appropriately,'' Coakley said in a statement.

UBS yesterday announced it was exiting the municipal finance business.

The Massachusetts Turnpike Authority is among those to receive reimbursement and will get $4.4 million.

The affected towns and cities include: Town of Andover, City of Holyoke Contributory Retirement System, Town of Merrimac Light, Town of Needham, City of Holyoke, Town of Whitman, Town of Hudson, Town of Westborough, City of Chicopee, Town of Barnstable, Town of East Longmeadow, Town of Wayland, Town of Boylston, Town of Winchester, Town of Warren, Town of Mattapoisett, Town of Dedham, and Town of Belchertown.
(By Beth Healy, Globe staff)