Reply #7: UBS Defrauded Investors, Cuomo Alleges in Lawsuit

[ozymandius]

New York Attorney General Andrew M. Cuomo filed a securities fraud lawsuit yesterday against UBS, alleging that the Zurich investment bank marketed billions of dollars in unconventional bonds to investors around the country while improperly claiming they were as safe and liquid as cash.

The suit alleges that UBS defrauded more than 50,000 customers out of more than $20 billion by knowingly misrepresenting the investments, which are known as auction-rate securities, while several senior bank executives were selling off more than $21 million of their personal holdings in these bonds.

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Auction-rate securities are variable-rate bonds that are put up for bid as often as once a week to determine their interest rate. Normally, the bidding process produces a lower rate than that of traditional bonds. But over the past few months, as the credit crisis spread across the financial system, bidders have been unwilling to buy these bonds except at high rates.

In February, as the credit crisis was getting worse, the $330 billion market for auction-rate securities froze up as the nation's largest firms declined to bid on them. This meant that investors could not take their money out or sell them.

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/24/AR2008072403740.html?hpid=sec-business