The Boston Globe reports that UBS AG's UBS Financial Services Inc. knew last December what kind of risk investors were exposed to with auction-rate securities and failed to warn all of its clients.
Citing a letter to investors, the Globe reports that in December, UBS advised the New Hampshire Higher Education Loan Corp. to offer a 17 percent or 18 percent rate on its bonds if they ever stopped trading. The borrower had paid about 5.2 percent on its bonds on average.
This agreement with the New Hampshire group and Lehman was never disclosed to other investors. UBS never warned other investors of the potential for failed auctions either. Some holders of the New Hampshire student-loan bonds were told in February that they were unable to sell the debt.
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