Head of UBS’s fixed income unit, David Shulman, has been placed on administrative leave as state and federal probes continue to heat up over the Swiss-based investment giant’s mishandling of the UBS failed auction rate securities.
E-mails between Shulman and other UBS executives are at the center of a lawsuit filed by Massachusetts Secretary of State William Galvin. Galvin, who filed the UBS lawsuit on June 26, says the bank committed securities fraud by selling the auction-rate notes as cash equivalents without telling investors the many risks associated with them.
Shulman ran the auction securities business for BS, which is the second largest underwriter of municipal auction-rate securities in the country. UBS, as well as other Wall Street firms, has been the subject of state and federal investigations following the collapse of the $330 billion auction securities market in February. For years, investment banks like UBS promoted auction-rate notes as secure and liquid investments that were issued by municipalities, student loan companies and not-for-profits. The interest rates on auction-rate securities are reset at weekly or monthly auctions.
Cuomo says his goal with the UBS lawsuit is to force UBS to make those assets liquid again for some 50,000 customers who have been unable to access $37 billion. As the credit crunch worsened, however, investment banks began to pull back their support from the auction-rate market, leaving tens of thousands of investors stuck with auction-rate notes no one wanted to buy.
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