Galvin charges UBS with fraud

Massachusetts Secretary of State William F. Galvin said today that he has charged UBS Securities LLC and UBS Financial Services Inc. "with fraud and dishonest conduct in retail sales of auction rate securities to investors who were told by their UBS representative that the investments were safe, liquid 'cash alternatives' when UBS knew they were not."

UBS today vowed to defend itself against Galvin's allegations.

The Globe reported today that Galvin's action was expected. Please click here to read that story.

In a statement e-mailed to the Globe, UBS referred to auction rate securities as ARS.

"We are disappointed that the Massachusetts Securities Division has filed this complaint against us, as we, our peers, and the industry work toward solutions," UBS said. "We continued to support the auction rate securities market longer than any other firm. We held approximately $11 billion worth of ARS at the end of 1Q08. We have offered our clients loans of up to 100 percent of the par value of their ARS holdings at preferred lending rates. UBS, our clients, and clients of other industry participants all share the impact of this unprecedented loss of liquidity in the ARS market."

UBS also said: "We will defend the specific allegations of the complaint. Contrary to the allegations, UBS is committed to serving the best interests of our clients. We will continue to work with the industry toward broad solutions."

Galvin said in a statement today: “UBS pushed the sales of these instruments as ‘cash alternatives’ without telling their customers of their vulnerabilities. Nor did UBS tell them that the only ARS products being offered were what UBS had underwritten and that UBS was trying to unload at the eleventh hour. The game was fixed; only the customers were in the dark.”

To read the complaint that Galvin's office filed, please click here.
(By Chris Reidy and Beth Healy, Globe staff)