New York sues UBS, alleges auction-rate fraud

SOURCE:

Reuters

2008-07-24 11:47:33

New York sues UBS, alleges auction-rate fraud

NEW YORK (Reuters) –

New York Attorney General Andrew Cuomo

filed a civil lawsuit on Thursday against UBS AG (UBSN.VX),

accusing the Swiss bank of deceptively steering customers into

auction-rate securities that this year became impossible to

cash out of amid the credit crunch.

The suit, filed in New York state court, accuses UBS of

deceptively selling auction-rate securities to customers as

cash equivalents.

UBS said in a statement it would “vigorously defend” itself

against the charges brought by Cuomo.

“It is frustrating that the New York Attorney General has

filed this complaint while we have been fully engaged in good

faith negotiations with his office to bring liquidity to our

clients holding auction rate securities,” the Swiss bank said.

It said it will “vigorously defend ourselves against this

complaint.”

Cuomo also accused several senior UBS executives of

wrongdoing, saying subpoenaed e-mails detail how they dumped

$21 million in personal holdings as the auction-rate market

collapsed while still pushing securities to customers.

“UBS also continued the fraud after they knew the fraud was

revealed for what it was,” Cuomo said at a news conference.

“After the auctions were failing they continued to sell the

auction-rate securities.”

He said “UBS is not alone in this scheme, there are other

institutions which participated, but UBS is a major player.”

The lawsuit is expected to be the first in a series of

cases to arise from the state’s investigation into Wall

Street’s handling of the $330 billion auction-rate securities

market.

The short-term investments, long touted as being as liquid

as cash, lost their value after brokers stopped supporting the

market in late January.

(Reporting by Joseph A. Giannone; writing by Martha

Graybow; editing by Jeffrey Benkoe, Phil Berlowitz)

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