UBS AG has been sued for $174 million by one of the Hartford area”™s richest families, who claim UBS failed to redeem bonds it had marketed as the equivalent of cash.
Based in Switzerland, UBS is the third largest employer in Fairfield County with more than 5,500 employees in Stamford.
Hartford-based Chase Enterprise Holdings L.L.C. is suing UBS in Connecticut federal court. Along with several small family trusts, Chase Enterprise claims UBS invested $74 million of organization funds in auction rate securities, and that the bank represented the investments as “cash alternatives” with similar liquidity.
When the trusts attempted to cash out of the bonds, however, UBS allegedly balked due to the February collapse of auctions that had created a market for the instruments.
The Chase trusts are seeking an additional $100 million in punitive damages.
Auction-rate securities (ARS) are municipal or corporate bonds that pay interest at rates set in periodic auctions held in intervals ranging between one and five weeks.
The lawsuit comes on the heels of probes launched by attorneys general in New York and other states looking into the February collapse of the auction rate securities market, as well as several announced class-action lawsuits. In mid-April, the North American Securities Administrators Association indicated several of its state regulatory members have been conducting investigations and are coordinating efforts to help investors who cannot access funds that their brokers placed in the investments.
At deadline, no Connecticut regulator had yet to announce an investigation, but in mid-April the state put $50 million in bonds onto the market, intending to use the proceeds to refund outstanding auction-rate securities.
In Chase Enterprise, UBS has nettled one of Connecticut”™s wealthiest families. Founder David Chase and family members Arnold and Cheryl Chase invest in a range of real estate and securities holdings. The Chases own the New Haven headquarters building of UIL Holdings Inc., whose utility subsidiary United Illuminating Co. provides power in the Bridgeport area. Until March, the Chases held a large stake in UIL, but last month reported their shares of UIL had fallen below the 5 percent threshold, without publicizing specifics.
Arnold Chase is building a West Hartford mansion that reportedly will be among the largest private residences in the United States when it is completed.
The family was first approached on the topic of ARS by Paine Webber, a brokerage that was subsequently acquired by UBS. Paine Webber allegedly represented the investment as having a 90 percent guarantee by the federal government, and with a yield topping that of Treasury bills and money market funds.
As late as last summer, the Chase organizations invested $50 million in ARS. UBS was the largest dealer in such securities, according to the lawsuit. When it stopped participating in ARS auctions in mid-February, the market collapsed, trapping Chase”™s investments.
The Chase foundation has supported Talcott Mountain Science Center in Avon; Goodspeed Opera House in East Haddam; Connecticut Public Broadcasting; and Hartford Hospital.
