Securities Law Blog

The Securities and Exchange Commission's Division of Enforcement today announced a preliminary settlement in principle with UBS Securities LLC and UBS Financial Services, Inc. (collectively, UBS) including proposed charges and a plan that would restore approximately $22 billion in liquidity to its customers who invested in auction rate securities (ARS). This plan includes approximately $8.2 billion for individual investors, small businesses, and charitable organizations, $3.3 billion for holders of tax-exempt Auction Preferred Shares (subject to regulatory review), and $10.3 billion for institutional investors.

Follow up:

The full text of the SEC press release follows:

Washington, D.C., Aug. 8, 2008 — The Securities and Exchange Commission’s Division of Enforcement today announced a preliminary settlement in principle with UBS Securities LLC and UBS Financial Services, Inc. (collectively, UBS) including proposed charges and a plan that would restore approximately $22 billion in liquidity to its customers who invested in auction rate securities (ARS). This plan includes approximately $8.2 billion for individual investors, small businesses, and charitable organizations, $3.3 billion for holders of tax-exempt Auction Preferred Shares (subject to regulatory review), and $10.3 billion for institutional investors.

The ARS market collapsed in mid-February 2008, leaving over 40,000 UBS customers holding these illiquid securities indefinitely. The conduct underlying the proposed charges stems from UBS’s marketing of auction rate securities as cash alternatives. However, the liquidity of these securities was premised on UBS providing support bids for auctions it managed when there was not enough customer demand, but this was not adequately disclosed to customers. When UBS stopped supporting auctions in February 2008, it led to widespread auction failures for UBS customers.

Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “The Division’s agreement in principle with UBS, if approved by the Commission, will quickly restore liquidity to tens of thousands of UBS investors. In a short time, approximately 31,300 individual, charitable, and small business investor accounts will receive more than $8.2 billion in liquidity, and approximately 9,200 investor accounts holding tax-exempt Auction Preferred Shares will receive nearly $3.3 billion in liquidity. UBS also will begin the process of restoring $10.3 billion in liquidity to approximately 1,000 institutional investor accounts.”

The terms of the agreement in principle, which are subject to finalization, review and approval by the Commission, provide:

* UBS will be permanently enjoined from violating the provisions of Section 15(c) of the Securities Exchange Act of 1934, and Rule 15c1-2 thereunder, which prohibit the use of manipulative or deceptive devices by broker-dealers.

* No later than Oct. 31, 2008, UBS will offer to liquidate at par all ARS from individual investors and charitable organizations who have less than $1,000,000 in funds on deposit at UBS.

* No later than Oct. 31, 2008, subject to regulatory approval, UBS will proceed with its plan for the repurchase of tax-exempt Auction Preferred Shares held by all UBS investors.

* No later than Jan. 2, 2009, UBS will offer to liquidate at par all ARS from all other UBS individual investors and charitable organizations as well

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.