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NEWARK
– The Office of the Attorney General
through its Bureau of Securities has signed
a final Consent Order that requires UBS
to repurchase auction-rate securities (ARS)
from New Jersey clients to settle allegations
that the firm’s securities dealers
sold ARS without disclosing known risks
of the ARS market.
Under the terms of the settlement, UBS Securities
LLC and UBS Financial Services, Inc. have
agreed to offer the repurchase of $1.5 billion
in ARS sold to retail investors in New Jersey.
Although marketed and sold to investors
as safe, liquid, and cash-like investments,
the ARS were actually long-term investments
subject to a complex auction process that
failed in early 2008, revealing illiquidity
and lower interest rates than investors
were promised.
This
is the eighth such settlement that the Bureau
has reached with firms that sold ARS to
New Jersey investors. More than $2.5 billion
of these assets have been repurchased by
the firms, under terms of the settlements.
“Investors
suffered because of this firm’s failure
to disclose known risks,” Attorney
General Paula T. Dow said. “Disclosure
of material facts to the investing public
is not only the law, but is necessary for
consumers to make fully informed decisions
about investing their hard-earned money.”
“We
continue to monitor the securities industry
in New Jersey, to ensure compliance with
our state laws,” said Thomas R. Calcagni,
Acting Director of the Division of Consumer
Affairs. “We’re ready to act,
as we’ve done in this matter, to protect
investors when our laws are not followed.”
“The
Bureau of Securities continues to seek relief
for investors who were sold these unsuitable
and illiquid products,” said Marc
B. Minor, New Jersey Bureau of Securities
Chief. “State securities regulators
continue to work together to protect investors
stuck with ARS and to hold the firms accountable
for violating state investor protection
laws.”
The
order also requires UBS to pay $3,790,487
in civil penalties to New Jersey. This amount
represents the state’s pro-rata share
of a settlement negotiated by a multi-state
task force of state regulators formed by
the North American Securities Administrators
Association (NASAA).
During
the investigation, regulators discovered
that UBS securities dealers failed to adequately
inform customers of the risks associated
with buying ARS, or the firm’s participation
in creating artificial demand in auctions
when demand faltered.
The investigation into UBS’ role in
the sale of these securities is part of
a larger state-led effort to address problems
in connection with ARS investments. Early
in 2008, state offices began receiving complaints
from investors throughout the country. As
a result, 12 states, including New Jersey,
formed a task force to investigate whether
certain Wall Street firms had systematically
misled investors when placing them in auction
rate securities.
The Consent Order sets forth the findings
and conclusions by BOS and the terms previously
agreed to in principle.
BOS Investigating Attorney Peter C. Cole
led New Jersey’s efforts in securing
this settlement and protecting Garden State
investors.
The
Bureau of Securities can be contacted toll-free
within New Jersey at 1-866-I-INVEST
(1-866-446-8378) or from outside New Jersey
at 973-504-3600. The Bureau's web site is
located at www.njsecurities.gov.
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