WASHINGTON -UBS Securities LLC will pay Massachusetts $1 million after an agreement was reached yesterday resulting from state Attorney General Martha Coakley's allegation that the bank misled cities and towns into investing in "risky" auction-rate securities.
UBS will also return $3.4 million to four cities and towns, in addition to $35 million the bank agreed in early May to return to 17 other municipalities and the Massachusetts Turnpike Authority, according to a release from Coakley.
UBS will pay the state $750,000 for fees and costs related to UBS' sale of ARS to certain municipalities, and an additional $250,000 that will be used to educate, train, and assist finance officials in the state about "appropriate investments, investment management practices, and financial controls."
"We are pleased with the results in this case," Coakley said in the statement. "Our primary interest was to promptly return to these towns and cities the investment monies they placed with UBS."
Yesterday's agreement affects two additional towns, Norwood and Southborough, and two additional cities, Fall River and Woburn, which will receive a $3.4 million total payout, on top of what agreed to pay in May.
"Today's news represents the final steps in the resolution of this matter with the Massachusetts attorney general," according to UBS spokesman Kris Kagel.
In February, Coakley's office began its investigation of allegations that UBS misled municipalities regarding their use of auction-rate securities as investments under Massachusetts law. The auction-rate market began to fail in early February after investment banks declined to buy unsold auction-rate bonds at auction, forcing investors - in this case, MassPike and the 21 municipalities - to keep bonds they were hoping to unload and requiring issuers to pay higher interest rates.
This settlement is separate from a securities fraud case that Massachusetts Secretary of the Commonwealth William Galvin filed in late June against UBS for allegedly selling ARS to retail investors as "liquid, safe, money-market" at a time when the auctions would have failed without support from dealers.
UBS said in a reply to that suit that its actions had been "honest and ethical" and that any misrepresentations or omissions the bank had made were made in "good faith." The bank is being represented by Debevoise & Plimpton LLP.
New York Attorney General Andrew Cuomo last week also filed a separate securities fraud lawsuit against the investment bank, which seeks to force the bank to buy back ARS from its customers across the nation at par.
