An arbitration claim just filed with FINRA against UBS Financial Services and David Shulman, global head of UBS’ Municipal Securities Group, is seeking the return of $2.5 million now frozen in auction-rate securities and punitive damages for alleged fraudulent sale of the shares. The twist in this suit is that the investor filing the claim had been sold the securities by his own son, a UBS broker at the time, and later by other UBS brokers.
The claim is accusing UBS of several wrongs: misleading investors by not providing information regarding the liquidity risks of auction-rate securities, failing to disclose the manner in which the auctions were run and the fact that UBS helped prop up the auction-rate securities market and neglecting to train and inform brokers in the risks and complexities of the various auction-rate securities
The unnamed investor filing the claim is a 70-year-old retired doctor residing in Florida who says he was sold student-loan-related auction-rate securities by his son, a former UBS broker. The son, who left UBS several years ago, was told that the securities were cash alternatives and could be used to lure clients away from bank money-market funds. The investor bought securities in Missouri Higher Education, Pennsylvania Student Loan, Iowa Student Loan, Illinois Student Loan Assist, Utah Student Board of Regents and Kentucky Higher Education Student Loan. All of the securities were listed as “cash alternatives" when in reality, some of them wouldn’t even mature until the investor was 107 years old.
According to the plaintiff’s attorney, the investor would have never bought auction-rate securities if UBS had warned investors that auctions could fail, certain features could impact its liquidity and that UBS propped up the auctions.
This claim is also citing Massachusetts’s case to support its claims. William F. Galvin, Massachusetts Secretary of State, filed civil charges accusing UBS of fraud and dishonest conduct in misleading investors about the risk of auction-rate securities. UBS is already facing claims from every direction but Galvin’s effort has opened the door to punitive damages.
Galvin’s office also charged Shulman of engaging in an internal marketing campaign to sell UBS' own inventory of auction-rate securities to investors while he sold his personal auction-rate holdings at the same time due to increasing risks.
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