Archive for the “UBS” Category

Former UBS executive David Shulman has agreed to pay a $2.75 million fine over insider trading charges connected to auction-rate securities sales and be suspended from employment by a broker or dealer until next January. He was suspended by UBS in July 2008.

“While thousands of UBS customers received no warning about the auction-rate securities market’s serious distress, David Shulman - one of the company’s top executives - used insider information to take the money and run,” said New York Attorney General Cuomo in a press statement. “From the start, our prime goal has been to get investors their money back.  But let there be no mistake - when corporate executives unlawfully take advantage of their positions, we will hold them accountable.”

Cuomo announced the settlement with Shulman on Feb. 18. Shulman is the second UBS executive to settle with Cuomo’s office thus far. To date, Cuomo’s investigation into auction-rate securities has reached agreements with 13 broker/dealers and produced more than $60 billion in repurchases of investors’ ARS holdings.

Shulman was accused of selling off $1.45 million of his personal investments in auction-rate securities in December 2007 after he learned that UBS’ own auctions were hitting a snag. On Dec. 11, one of Shulman’s employees e-mailed him that the group was “very concerned” about certain issues related to UBS’ student loan auction-rate program and its continuing support for that program.  In that e-mail, the employee stated that “the auction product is flawed.”

On Dec. 12, records show that one of Shulman’s employees forwarded an e-mail to Shulman with a subject line of “stud loans,” and warned Shulman that “the auction product does not work … our options are to resign as remarketing agent or fail or ?” In another e-mail that same day, the employee advised Shulman in no uncertain terms that with respect to UBS’ student loan auction-rate securities, “the entire book needs to be restructured out of auctions.”

Finally, on Dec. 13, Shulman instructed his broker to immediately sell his holdings in student loan auction-rate securities, before the upcoming auctions could occur.  Later that day, Shulman’s ARS holdings were sold via inter-auction directly to the UBS Short Term Trading desk.

Coincidentally, the Short Term Trading desk was under Shulman’s supervision.  Shulman’s broker mentioned Shulman by name when he called the desk to place the trades. This was the first and only time Shulman sold auction rate securities inter-auction.

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The auction rate securities mess is heating up for Charles Schwab. New York Attorney General Andrew Cuomo is expected to soon file a lawsuit against San Francisco-based Schwab over issues related to the company’s marketing and sales of auction rate securities (ARS) to retail and institutional investors. Cuomo announced last month that he intended to take legal action against the brokerage unless it agreed to an ARS settlement and a buy-program to repurchase the auction rate securities from clients.

Since no deal has materialized, Cuomo will likely proceed with a civil fraud lawsuit against Schwab, according to an Aug. 17 story in the Wall Street Journal. As part of the lawsuit, Cuomo will present transcripts of recorded conversations between Schwab brokers and its clients, revealing how the auction rate securities were misrepresented by Schwab.

In one exchange between a Schwab broker and a client, the customer says: “You know, I’m not trying to make a ton of money. I just want to play it safe.” The broker responds: “The hardest part of this auction is getting into it. That is the tough part. Getting out is easy as just selling.”

Auction rate securities are considered long-term debt instruments that act as a short-term investment because of the manner in which they are resold. Interest rates on the products are reset at weekly or monthly auctions. When the market for auction rate securities collapsed in February 2008, thousands of retail and institutional investors became stuck with an illiquid investment.

Faced with potential lawsuits from state and federal securities regulators, a number of Wall Street firms that underwrote auction rate securities, including Citigroup, Merrill Lynch, UBS and J.P. Morgan Chase, agreed to buy back more than $60 billion of the instruments from customers.

Several retail brokerages, however, opted not to participate in the buy-back programs. Specifically, some “distributors” of auction rate securities continue to leave their clients with no solution to the financial losses they’ve suffered because of ARS investments.

When the market for auction-rate securities collapsed last year, Schwab’s clients were stuck with $789 million of the securities.

Schwab’s hold-out to avoid any type of settlement with regulators comes on the heels of recent agreements by two retail brokers to buy back millions of dollars in auction rate securities from clients. In July, Fidelity Investments and TD Ameritrade both agreed to repurchase $756 million of the securities from customers.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Thousands of institutional investors that bought auction-rate securities on the premise they were cash equivalents are still waiting for their liquidity to materialize. By and large, corporate investors were not included in the settlement agreements that took place last summer when Wall Street banks and investment firms agreed to buy back billions of dollars worth of auction-rate securities from retail investors and small businesses as a way to settle state and federal charges alleging misrepresentation of the instruments. Instead, institutional investors continue to be left waiting in the wings, with no ARS solution in sight.

Auction-rate securities are long-term bonds or preferred stocks that pay interest or dividends at rates determined through auctions held every seven, 14 or 28 days. In February 2008, the market for auction-rate securities essentially collapsed, leaving both retail and institutional investors holding a supposedly liquid investment now considered worthless. 

Approximately $330 billion of auction-rate securities were outstanding when the auctions began collapsing in February. About $160 billion of auction rates remain outstanding following the settlements, according to a May 24, 2009, article in Investment News, with most paying very low “penalty” rates under the terms of the failed auctions.

The ARS buyback programs that were announced by brokerage firms in August 2008 failed to provide liquidity relief to institutional investors, offering instead only vague commitments to work with corporate investors on finding a solution for their ARS holdings. Even then, it could be years before institutional investors see any of their auction-rate securities redeemed for cash. 

Meanwhile, companies such as Citigroup, Wachovia, Merrill Lynch, and UBS Financial Services all face a growing list of individual lawsuits from institutional investors that have massive amounts of money still tied up in illiquid auction-rate bonds. To date, several investors have scored major legal victories in their ARS cases, including a February 2009 decision by a Financial Industry Regulatory Authority (FINRA) arbitration panel that awarded European chipmaker STMicroelectronics $406 million over a dispute with Swiss bank Credit Suisse Group and the unauthorized purchase of auction-rate securities.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Securities regulators in New Hampshire have accused a unit of UBS AG, Switzerland’s largest bank, of recommending unsuitable investments to customers who put their money into complex securities underwritten by Lehman Brothers Holdings, Inc.

According to the New Hampshire Bureau of Securities Regulation, UBS allegedly represented the securities as “safe” investments to clients, guaranteeing them “principal protection.”

As it turns out, following the September 2008 bankruptcy filing of Lehman Brothers - which is the largest in U.S. history at more than $600 billion in debt - many of these same investors will likely lose the majority of their supposed principal-protected investment. Additionally, New Hampshire regulators also contend UBS failed to warn investors about the potential risks of the structured finance products once Lehman itself began to experience financial troubles.

As reported June 4 by the Wall Street Journal, New Hampshire regulators filed the civil complaint against UBS on Wednesday, June 3.

In a statement, Jeff Spill, New Hampshire’s deputy director of securities regulation for enforcement, said UBS presented “the structured notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions.”

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The maker of Valvoline motor oil has filed a lawsuit against Oppenheimer & Co., a subsidiary of Oppenheimer Holdings, over the sale of $194 million of auction-rate securities. According to the complaint by Ashland Inc., Oppenheimer misrepresented the liquidity and risks of the instruments at the time it sold them to the chemical company in 2007 and early 2008. 

When the market for auction-rate securities collapsed in February 2008, Ashland, like thousands of institutional and retail investors, found itself stranded with an illiquid investment that no one wanted to buy. Several months later, in an effort to settle investigations by state and federal regulators, many Wall Street firms, including Citigroup, UBS and Merrill Lynch, agreed to buy back billions of dollars of auction-rate securities from investors. Oppenheimer, however, opted not to participate in the ARS buy-back programs, contending it didn’t issue or underwrite the securities but only sold them.

In November 2008, Massachusetts’ Secretary of State William Galvin sued Oppenheimer, charging the firm with fraud and dishonest and unethical conduct in connection to its auction-rate securities business. Galvin not only wanted Oppenheimer to rescind all sales of auction-rate securities at par and make full restitution to investors who already had sold their securities but also sought to revoke Oppenheimer Chairman and CEO Albert Lowenthal’s Massachusetts registration as a broker-dealer agent of Oppenheimer, as well as fine the company and several senior-level executives.

Ashland filed its lawsuit against Oppenheimer on April 17 in the U.S. District Court for the Eastern District of Kentucky.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The year of 2008 may go down in history as a year of scandals gone wild. From Bernie Madoff’s $50 billion Ponzi scheme to the collapse of the auction-rate securities market, individual and institutional investors alike have found themselves entangled in a financial nightmare that seems to go from bad to worse.

For investors who’ve been stuck holding illiquid auction-rate securities since February 2008, the likelihood that regulators will find a solution to their dilemma anytime soon is remote. Even though some of Wall Street’s biggest firms have bought back more than $60 billion of their clients’ securities, another $135 billion of the bonds still remain frozen.

As reported Dec. 31 by the Boston.com, the illiquidity status of auction-rate securities is hitting small businesses especially hard. Vicor Corp., which makes power systems for electronics, is one of those businesses. The company invested nearly $40 million in auction-rate securities before the market’s collapse in February. At the time, the company’s management thought the bonds were safe and liquid investments. Now, the earliest that Vicor can expect to see some of its auction-rate money is 2010.

UBS is one of the firms that sold Vicor the auction bonds, and it has pledged to buy back about $18 million worth of the securities beginning in June 2010. However, Vicor also bought another $20 million of auction securities from Bank of America, which has yet to offer any kind of buy-back program to Vicor and other large institutional and corporate holders of auction-rate securities.

Another company with a huge chunk of its money tied up in illiquid auction-rate securities is Tufts Health Plan. The Massachusetts-based health care provider has nearly half of its total cash holdings - approximately $30 million - in auction-rate securities at Citigroup. So far, Citigroup hasn’t announced any plans to help Tufts get its money back.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Investors with Raymond James Financial are still holding out for answers from the St. Petersburg-based financial services firm regarding their illiquid auction-rate securities. So far, all they’ve gotten is a four-page letter dated Jan. 2 from Thomas James, chairman and chief executive officer, in which he “apologizes” for investors’ dilemma but says the company cannot repurchase the securities it sold because it doesn’t have enough capital on hand.

The message is of little comfort to clients of Raymond James Financial who currently own about $1 billion in outstanding auction-rate bonds and auction-rate preferred securities. It’s the same scenario they’ve faced since February 2008, when the $330 billion auction-rate securities market collapsed and left hundreds of thousands of investors unable to sell securities that had been touted as cash equivalents.

Facing pressure from state and federal regulators, a number of financial firms such as UBS, Wachovia, Merrill Lynch, Morgan Stanley and others announced plans to repurchase the illiquid securities from their clients. Many already have completed their buyback programs. Clients of Raymond James Financial, however, have been left in a holding pattern.

As it turns out, they may be in for a long wait. Any potential relief is likely tied to Raymond James Financial’s ability to secure a bank loan and buy back the securities after it becomes a bank-holding company. But that process will not be completed until next summer.

Meanwhile, Raymond James Financial remains under investigation by the Securities and Exchange Commission (SEC), the New York Attorney General and the Florida Office of Financial Regulation for its handling of auction-rate securities.

The company’s stock also has taken a beating from the firm’s inability to make good on its customers’ auction-rate securities. As of Dec. 31, 2008, shares of Raymond James Financial had fallen more than 40%.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Investors who purchased auction-rate securities from UBS should be aware of the date Dec. 19, 2008. That’s when the settlement offer forcing UBS to repurchase auction-rate securities that it sold to investors prior to the collapse of the ARS market in February 2008 officially expires.

For investors who did not participate in the repurchase program, there are still some options available, however. They can continue to hold the illiquid securities until their maturity dates or they can file an arbitration claim to recover access to their funds.

Earlier this summer, state and federal investigations into UBS over sales of auction-rate securities revealed that the Swiss-based firm had misrepresented the securities as cash equivalents to investors. Regulators also discovered that UBS intentionally ramped up its corporate marketing efforts to dump auction-rate securities onto investors so that the company wouldn’t be left holding the bag when the ARS market eventually imploded in February.

In August, in a deal struck with New York Attorney General Andrew Cuomo, Massachusetts Secretary of State William Galvin, the Securities and Exchange Commission (SEC), and other state regulators, UBS agreed to buy back nearly $20 billion in failed auction-rate securities from investors and pay a fine of $150 million to Massachusetts and New York.

UBS also faces additional allegations that seven of its executives sold approximately $21 million in personal auction rate holdings while continuing to push the instruments to investors.

Our affiliation of securites lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Earlier this summer, news of auction-rate securities (ARS) settlements gave hope to millions of investors who were stuck with illiquid auction bonds following the collapse of the ARS market in February. As institutional and retail investors have discovered, however, the settlements between Wall Street firms and securities regulators contain specific clauses that make them ineligible to recover any financial losses from auction-rate securities.

A Nov. 28 article by Gretchen Morgenson in the New York Times highlights the ongoing problems for a growing number of investors who bought auction-rate bonds and who still are unable to find a solution for their problems. As Morgenson’s article points out, the terms of many of the settlements dictate that firms redeem auction-rate securities for clients who bought them between certain dates only.

For example, in the deal struck by Massachusetts securities regulators with UBS on Aug. 8, the firm agreed to the redeem auction-rate securities of clients who bought them from UBS between Oct. 1, 2007, and Feb. 13, 2008, and who moved to other firms, as well as clients who were holding any auction-rate securities at UBS on Feb. 13.

That means investors who, say, bought auction-rate securities sometime in 2006 from UBS and then moved to another brokerage firm that year would be disqualified from participating in UBS’ settlement offer.

Irene Scharf is an investor who did just that. Back in 2005, the college professor invested $75,000 in several auction-rate securities backed by municipalities. The money she invested was intended to pay for her two sons’ college education. According the NYT’s article, Scharf purchased the auction-rate securities at the suggestion of her broker at UBS. In 2007, that broker joined Smith Barney, and Scharf moved her account with him.

In the deal struck with Smith Barney, the brokerage only is required to redeem customers’ auction-rate securities that were directly bought from the firm before Feb. 11, 2008. In other words, that leaves Scharf out.

“We lived very frugally for years so I would not have to take out loans when my kids went to college,” Scharf said in the New York Times article. “I was not informed of any risk; my broker kept assuring me nothing was safer. When I asked about redeeming them, he said I’d only need to give him two or three days’ notice to redeem.”

Scharf’s dilemma is far from unique. More and more retail and institutional investors are learning that the settlements involving auction-rate securities contain specific clauses that disqualify them from redeeming their illiquid auction bonds.

As for the securities regulators that devised the settlement offers, they say they are aware of the problem and continue to work on finding a solution for all auction-rate holders.

With 2008 quickly coming to a close, that solution is long overdue.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

When Lehman Brothers Holdings filed for bankruptcy protection on Sept. 15, investors who previously purchased the company’s 100% Principal Protection Notes (PPNs) thought they were protected. After all, Lehman’s own marketing brochures touted the notes as “100 percent principal protection.” Little did they realize that the value of the notes was contingent on Lehman’s own solvency. When Lehman filed for bankruptcy, it subsequently defaulted on many of the notes.

In the wake of the bankruptcy, a class action was filed on Nov. 6 on behalf of individuals who purchased Lehman Principal Protection Notes (PPNs) from UBS Financial Services, Inc. The complaint alleges that UBS brokers made false and misleading statements that omitted key facts about the risks connected to the Lehman notes.

“Investors should be aware of the pending class action,” said attorney Ryan K. Bakhtiari of Aidikoff, Uhl & Bakhtiari. “The class case has certain pitfalls that investors need to be aware of in selecting an attorney. In our opinion, most investors will fare better by filing individual arbitrations.”

The brokers who sold the Lehman PPNs are not targets of the investigation, according to the investors’ legal team, which includes the firms of Aidikoff, Uhl & Bakhtiari, of Beverly Hills, Calif.; Maddox, Hargett & Caruso, P.C., of Indianapolis, Ind. and New York, N.Y.; Page Perry, LLC, of Atlanta, Ga.; and David P. Meyer & Associates Co., L.P.A., of Columbus, Ohio.

For additional facts to consider before joining a Lehman Principal Protection Note Class Action, go to: http://www.marketwatch.com/news/story/Lehman-Principal-Protection-Note-Investigation/story.aspx?guid=%7BB1DCAE49-C622-4C49-BC55-CE6C17C887D0%7D

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.