Even as the Swiss government remains split on a treaty that could result in UBS AG releasing details on nearly 4,500 account holders to U.S. authorities, the bank agreed to pay $2.1 million to the state of Connecticut, as part of a multistate investigation over how it marketed student loans that were packaged as securities for sale to other investors.
UBS is among the largest corporate employers in Connecticut, with more than 4,000 workers in Stamford and smaller wealth management offices in Greenwich and Westport.
The Connecticut investigation centered on UBS Securities L.L.C. and UBS Financial Services Inc., which are both registered as broker-dealers in Connecticut and which sold auction-rate securities to investors.
UBS is paying a total of $75 million in fines to multiple states, and in Connecticut agreed to spend as much as $575 million to repurchase failed securities that were sold to investors in the state.
The company did not admit wrongdoing; under state law, the Connecticut Department of Banking can revoke the license of any company that engages in abusive or unethical sales and business practices.
Following the 2008 collapse of Lehman Holdings Group and subsequently the overall credit markets, customers who had bought auction-rate securities from UBS found themselves unable to sell the securities as their values plunged, despite previous assurances from UBS of fail-safe auctions for those securities.
Between January 2006 and February 2008, in some 27,000 auctions in which it was the sole or lead broker-dealer UBS Securities placed support bids to ensure that the auctions would not fail, according to the task force. After UBS decided to stop supporting those auctions, investigators said that clients were informed the market for these instruments had frozen and they no longer held liquid short-term instruments, but instead held instruments with long or perpetual maturities for which no market existed.
In the months leading up to the crisis, investigators said, UBS had repeatedly likened the auction-rate securities as akin to cash or a money-market investment. UBS Securities”™ compensation for underwriting auction-rate securities was typically 1 percent of the amount underwritten, according to investigators.
As part of its agreement, UBS also agreed to contribute $300,000 to train Connecticut law-enforcement personnel in investigating finance and banking cases.
Separately, at press deadline, Swiss legislators were scheduled to vote on a treaty that would result in the United States obtaining details on nearly 4,000 UBS customers, part of an Internal Revenue Service investigation into allegations of tax evasion by some customers. After Switzerland”™s government negotiated the deal last year in response to U.S. pressure, this month Switzerland”™s lower house of parliament rejected the treaty, even as the upper house supported it. Some 500 clients have already agreed to have their account details forwarded to the IRS.
