The Securities and Exchange Commission on Tuesday charged UBS Securities with violating the securities laws by failing to disclose that it retained $23.6 million it received upfront in the course of acquiring collateral for a collateralized debt obligation.
Without admitting or denying the commission’s findings, UBS agreed to pay nearly $50 million to settle the SEC charges, disgorging the $23.6 million, the disclosed fee of $10.8 million, about $9.7 million of prejudgment interest, and a penalty of $5.7 million.
The SEC’s investigation found that UBS received the upfront payments in the process of acquiring credit default swaps as collateral for the CDO, the commission said. Rather than transferring this cash to the CDO when the collateral was transferred, UBS retained the full amount of upfront payments in addition to its disclosed fee of $10.8 million, according to the SEC.
“UBS kept $23.6 million that under the terms of the deal should have gone to the CDO for the benefit of its investors,” said George Canellos, co-director of the SEC’s Division of Enforcement. “In doing so, UBS misrepresented the nature of the CDO’s collateral and rendered false the disclosures about how that collateral was acquired.”
These actions violated Section 17 of the Securities Act of 1933, the SEC said. They also caused the collateral manager on the deal, ACA Management, to violate Section 206 of the Investment Advisers Act of 1940.
