Andrew Cuomo, New York's Attorney General, is preparing to file civil securities fraud charges against UBS AG. Cuomo could act as early as this week, joining Massachusetts which already filed charges against UBS in June over the auction-rate securities debacle.
Although it's not clear if individuals would be named or charged, the impending lawsuit could include allegations of auction-rate malfeasance by senior UBS executives. Cuomo could also potentially file charges against other entities his office is investigating.
Since UBS trading operations for auction-rate securities are based in New York, this lawsuit could bring a broad resolution for UBS auction-rate clients nationwide. That means if there is a settlement it would let customers cash in their illiquid securities at face value. Like the other countless arbitration claims, class-action lawsuits and federal and state investigations into auction-rate securities, Cuomo's probe is focused on whether Wall Street firms adequately disclosed the liquidity risks of auction-rate securities to investors. Investors nationwide are saying they thought they were investing in safe, cash-like instruments. UBS clients currently hold approximately $25 billion worth of illiquid auction-rate securities.
Cuomo initially subpoenaed 18 firms in April and has expanded his probe this summer to consider potential liability by individuals at UBS. So far, Cuomo's office has subpoenaed 100 high-level individuals and 30 firms including Citigroup, Merrill Lynch, Goldman Sachs and J.P. Morgan, seeking information about the sales of auction-rate securities. Cuomo's suit is another blow to the industry and UBS.
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