WASHINGTON - In the first state-level lawsuit against an investment firm over auction-rate securities, Massachusetts Secretary of State William Galvin filed securities fraud charges yesterday against UBS Securities LLC and UBS Financial Services for selling retail investors auction-rate paper as "liquid, safe, money-market" instruments even though the defendants knew it was not.

In a 100-page complaint, Galvin said that UBS broker-dealers and financial advisers did not disclose to their clients the extent to which the Swiss-based bank bid in auctions to prevent them from failing and that no true auctions in fact existed because they would have failed without support from dealers. UBS also did not disclose to customers the conflicts of interest that UBS exposed itself to in its dual role in underwriting the securities and selling them to clients, Galvin said. Both units are part of parent company UBS AG.

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