Archive for the “UBS” Category

When several Wall Street investment banks recently agreed to buy back billions of dollars of illiquid auction rate securities from investors, some closed-end fund firms that were first on the scene to bail out investors by redeeming their auction rate preferred shares (ARPS) are now wondering if they did the right thing.

Their puzzlement is because some closed-end funds resorted to using expensive lines of credit and syndicated bank loans to finance the redemptions of auction rate preferred shares for investors. Now, those funds could be facing potential financial issues of their own.

An Aug. 12 article in the Wall Street Journal highlights the dilemma confronting closed-end funds that that initiated plans on their own to help disgruntled investors get rid of their auction securities when the market seized up six months ago.

Auction rates securities are long-term bonds but act like short debt, with interest rates that reset at auctions held every seven, 14, 28 or 35 days. Issuers of auction rate securities include municipalities, student loan companies and closed-end funds, the latter of which uses preferred shares in auction bonds to provide create higher returns for common shareholders.

Following the collapse of the auction market in February, investors holding auction rate preferred shares, or ARPS, found themselves in the same boat as thousands of other auction rate investors: unable to access their cash. Some closed-end funds, including Nuveen Investments, BlackRock and Eaton Vance, were quick to address investors’ concerns about their illiquid, auction rate preferred shares and voluntarily began developed redemption plans. Other closed-end funds simply have waited it out.

At the start of 2008, closed-end funds had about $64 billion of auction rate securities outstanding. Now, the figure is closer to $40 billion, a 37% decline, including what various closed-end funds have said they plan to redeem, according to an Aug. 11 article in Barron’s.

Such help could come at a cost for a few funds, however.

As reported in the Wall Street Journal article, some of the auction-rate preferreds issued by closed-end funds were pitched by Wall Street investment banks - many of which are the same banks at the center of state and federal investigations for marketing auction rate securities to clients as cash-alternative investments. Last week, Citigroup, UBS and Merrill Lynch agreed to buy back nearly $40 billion in auction rate securities. The settlement offers are expected to create a template for other firms to make amends with auction rate customers and resolve alleged claims of auction rate deception.

The recent turn of events means closed-end funds that waited on the sidelines rather than seek alternative or expensive forms of financing to help their investors out of auction-rate preferreds might be better off now financially.

Meanwhile, the auction rate scandal continues on. On Aug. 11, New York Attorney General Andrew M. Cuomo announced that his office is expanding its investigation, and notified JPMorgan Chase, Morgan Stanley and Wachovia that he will be looking into the their behavior and whether the firms sold auction rate securities to investors as safe, cash-equivalent products, when in fact the market was headed for disaster.

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.Â

What is the value of a reputation? Investment banking giant UBS may have that answer, as evidenced by the growing lack of investor confidence in the company.

Wary of mounting losses at the Swiss-based bank, clients apparently are walking away in droves. Total outflows in UBS’ wealth management units totaled nearly $40 billion in the second quarter - more than triple the amount in the first quarter - and contributed to second-quarter losses of $331 million for UBS. It is UBS’ fourth consecutive quarterly loss and negates a prediction of only a month ago when UBS said it expected to break-even in the second quarter.

Following the second-quarter losses and another set of write-downs totaling $5.1 billion, UBS says it is now planning to separate its investment banking and wealth management divisions into three autonomous units: wealth management, investment banking and asset management.

In addition to the restructuring plans, UBS also announced the replacement of Chief Financial Officer Marco Suter with John Cryan, a British banker.

UBS’ disappointing second-quarter results follow a string of problems plaguing the beleaguered company. As one of the hardest hit by the subprime crisis, UBS has taken more than $43 billion in write-downs from exposure to risky mortgage assets so far this year. (Collectively, financial institutions worldwide report nearly $500 billion of write-downs related to the collapse of the U.S. subprime market.)

Included in UBS’ second-quarter results is a provision of $900 million for its Aug. 8 settlement with state and federal regulators over sales of auction rate securities. In agreeing to the settlement, UBS will buy back nearly $19 billion of the illiquid securities from retail clients. It also will pay a fine of $150 million.

The settlement with UBS is the largest to date in a broader investigation into the auction rate securities market and claims by investors that Wall Street investment banks and securities firms failed to provide adequate information about the inherent risks of the instruments.

UBS also faces scrutiny from investigators who say the bank helped wealthy Americans evade U.S. taxes on offshore accounts. A congressional subcommittee looking into the matter stated that UBS had an estimated 19,000 “undeclared accounts” for U.S. citizens hiding $18 billion in assets from the Internal Revenue Service (IRS).

These and other issues hammered UBS’ stock prices this year, causing it to fall by almost two thirds since the beginning of 2008.

Meanwhile, the damage to UBS’ reputation lingers on. And while its decision to depart from a one-bank strategy into three autonomous business units is a welcome sign for investors - and signals a nod to greater accountability and transparency - the fact remains: Reputation, once lost, can be very hard to reclaim.

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 holding illiquid auction rate securities received some unexpected - and unprecedented - good news recently when Citigroup and UBS agreed to settlement offers with New York Attorney General Andrew Cuomo to buy back nearly $30 billion of the securities. Merrill Lynch announced its own auction rate buy back program, saying it would repurchase some $10 billion of auction rate securities.

But for institutional clients, a resolution to the auction rate securities nightmare still remains an open-ended question.

Part of the reason that institutional investors are seemingly excluded from some of the recent deals to settle allegations of auction rate abuse may be the inability of banks to absorb losses resulting from any settlement, according to an Aug. 7 article in the New York Times. By and large, institutional investors hold riskier securities, backed by the student loan and mortgage markets.

Investigations into auction rate securities have been ongoing ever since the $330 billion market seized up in February, and Wall Street investment banks pulled back their support. Following the market’s collapse, millions of investors were left holding auction securities they said had been pitched to them as cash-like investments.

Feeling the pressure from state and federal securities regulators, Citigroup, the nation’s largest bank by assets, reached an agreement with the New York Attorney General’s office on Aug. 7 in which it agreed to repurchase, by no later than Nov. 5, $7.3 billion of illiquid auction securities from approximately 40,000 of its retail customers, charities, and small to mid-sized businesses. The bank also will pay a fine of $100 million.

UBS is paying a $150 million fine and buying back $18.6 billion of the auction securities from retail clients. 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.

For institutional clients, however, the language in the current settlement offers is vague at best. For instance, in its agreement with Cuomo, Citigroup “pledges to help 2,600 institutional customers unload $12 billion of securities” and will use its “best efforts to facilitate issuer redemptions and/or to resolve its institutional investor clients’ liquidity concerns.”

That leaves many corporations and institutional investors in the dark about their auction rate holdings and if or when a resolution ultimately will be reached. Some arbitration lawyers are recommending that if clients need immediate cash, they should considering selling at a loss, and then seek securities arbitration against the broker-dealer for the haircut.

And depending on the type of instrument involved, the haircut can be significant. As reported Aug. 11 in Financial Week, Barry Silbert, CEO of Restricted Stock Partners, which operates an electronic trading marketplace for illiquid assets, says the discounts on auction rate securities at the time of sale are about 2% to 8% for municipals; 5% to 15% for closed-end funds ARPs; 15% to 30% for student loans; and in excess of 50% for collateralized debt obligations (CDOs.)

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.Â

First it was one, then more. Joining Citigroup, Merrill Lynch, UBS is the latest Wall Street investment bank to settle charges levied by state and federal regulators over the inappropriate sale of auction-rate securities. As part of the settlement, UBS agrees to repurchase nearly $19 billion - the largest amount to date - of the frozen securities from investors.

The agreement with UBS is between the Swiss-based firm, the Securities and Exchange Commission (SEC) and regulators in several states, including Massachusetts and New York.

Starting Jan. 1, 2009, UBS will buy back $8.3 billion of auction securities from individual investors, as well as $10.3 billion from institutional clients beginning June 2010. In addition, the firm has agreed to help its institutional clients sell $10.3 billion in securities.

UBS also will pay a fine of $150 million, which is to be split between Massachusetts and New York, both of which accused UBS of misleading clients about the liquidity risks of auction-rate securities.

Resolving its auction rate troubles will not come easy for UBS. Analysts say the firm potentially could be looking at up to nearly $2 billion in write-downs, which is on top of the $37 billion it already has taken.

Prior to the Aug. 8 settlement, UBS had been facing a tsunami of civil charges from securities regulators in multiple states, all accusing UBS of using deceptive marketing practices to pitch auction rate securities to investors as the market neared collapse. Once the market actually did seize up in February, thousands of investors were left holding millions of dollars in illiquid securities - investments they had been sold as cash equivalents.

In July, UBS reached a settlement with the attorney general of Massachusetts in which it agreed to buy back $37 million of auction rate securities sold to 18 Massachusetts cities and towns. One month later, the firm paid authorities in Massachusetts $1 million to resolve claims that it violated Massachusetts law by selling the securities to municipalities.

Despite the Aug. 8 settlement with UBS, Attorney General Cuomo apparently is not ruling out additional charges against select individuals at the firm who are alleged to have orchestrated internal campaigns to sell auction rate securities to unsuspecting investors. According to Cuomo’s complaint filed July 25, at least seven UBS executives sold $21 million of their personal holdings in auction rate securities while continuing to promote the instruments to individual investors. Among those executives is David Aufhauser, UBS’ general counsel, who quit the firm earlier this month.

UBS’ move to settle its auction rate problems follows similar actions taken earlier by Citigroup, Inc. On Aug. 7, the nation’s largest bank agreed to buy $7.3 billion of the securities from individual investors and pay a $100 million fine. Merrill Lynch, which had been sued by Massachusetts Secretary of State William Galvin, followed Citigroup’s lead and is voluntarily buying back about $10 billion auction rate securities starting in January.Â

Meanwhile, the unusual actions taken by Wall Street banks over the past several days to settle charges brought by state and federal regulators are being called unprecedented - and perhaps a strong indication that evidence of deception and fraud was indeed too extensive to deny.

Looking ahead, however, UBS could still face an uphill battle over auction rate securities. Â As reported Aug. 8 on Bloomberg.com, one of the higher costs UBS must address is liquidating the auction securities sold by student loan companies. Less than $3 billion in student loan-backed auction debt has been refinanced, which is minuscule compared with municipal and closed-end funds.

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.Â

After months of financial and personnel setbacks, including state and federal investigations over auction rate securities sales, dismal earnings and the ouster of CEO Ken Thompson, Wachovia Corp. has another issue to weather. As of the close of business on Aug. 7, the North Carolina-based bank officially stopped accepting applications for private, undergraduate student loans.

Private student loans are considered more profitable for banks over federal student loans based on the higher interest rates they carry. At the same time, private loans have greater risks, because there is no guarantee by the government.

Wachovia says it will continue to offer education loans for graduate and professional students, in addition to education loans backed by the federal government.

In recent months, the ongoing credit crunch has prompted a number of lenders to drop out of the business of making student loans. Many student loan companies raise capital by selling auction rate securities, but in February, as fallout from the subprime crisis hit a boiling point, the market for auction securities seized up, making it extremely difficult, if not impossible, for lenders to secure financing for the loans.

Compounding the problem for student lenders is last year’s change to a federal law, which cut interest rates on government-backed loans and drastically reduced the subsidies that lenders make as a profit on student loans.

As of March 2008, approximately 100 lenders had suspended their government-backed student loan programs, with about 30 others leaving the private student lending business altogether. Â In May, the federal government took steps to bolster the student loan market with the Ensuring Continued Access To Student Loans Act, which was signed into law on May 7. Among other things, the Act allows the U.S. Department of Education to buy government-backed loans from student lenders, thereby providing them with additional capital to finance new loans.

Meanwhile, Wachovia potentially has an even bigger issue to face. In July, its securities division was raided by a team of regulators from more than five states as part of a probe into the company’s sales of auction-rate bonds. With news that Citigroup, Merrill Lynch and now UBS agreeing to settle claims of deceiving investors about the liquidity risks of the securities by buying back their auction rate investments, Wachovia could be inclined to follow suit.

At the same time, however, Wachovia is looking at long-term credit problems and losses connected to its high concentration of option adjustable-rate mortgages and other risky investments. Any move to buy back the illiquid auction securities it sold to individual investors could very well put its balance sheets in serious peril.

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.

The nation’s largest bank, Citigroup, is the first Wall Street firm to plead a deal with federal and state regulators over claims of fraudulently marketing and selling auction rate securities to investors.

Under a settlement with New York State Attorney General Andrew Cuomo and the Securities and Exchange Commission (SEC), Citigroup will buy back approximately $7.3 billion of the illiquid securities from individual investors, charities and businesses with assets of less than $10 million, as well as pay a hefty fine of $100 million. Of that amount, $50 million is civil penalty to New York State, with a separate $50 million civil penalty to the North American Securities Administrators Association (NASAA).

The deal requires Citigroup to purchase the auction rate bonds by the end of February 2009.

Earlier this month, Cuomo and the SEC accused Citigroup of deceiving as many as 40,000 investors by downplaying the risks of auction securities during a time when the auction market was nearing collapse.

Auction rate securities are long-term, interest-bearing bonds issued by municipalities, student loan companies and others. Interest rates on the securities reset at weekly or monthly auctions, where existing investors can sell their auction bonds. In February, however, the $330 billion auction market essentially froze when Wall Street investment banks abandoned their role as a buyer of the securities. As a result, millions of investors were stuck with illiquid securities.

Citigroup is the largest underwriter of auction rate debt.

The decision to buy back the auction securities from investors follows a dismal second quarter for Citigroup, which recorded a $2.5 billion loss because of write downs on subprime mortgages and other risky debt totaling $12 billion. As of last year, the bank has incurred more than $58 billion of write downs and credit losses.

As part of its settlement agreement, Citigroup also must use its “best efforts” to help some 2,600 institutional investors sell roughly $12 billion of the frozen instruments they hold.

For months, state and federal regulators have intensified their probes of Wall Street firms over alleged wrongdoings in the auction rate market. Only hours after the Citigroup settlement was announced, Merrill Lynch - also a target of several investigations - agreed to buy back an estimated $10 billion of auction securities at full value beginning in January. Merrill’s offer is good for one year and, like Citigroup’s agreement, does not apply to institutional clients.

As reported Aug. 8 in the New York Times, the exclusion of institutional investors in the agreements with Citigroup and Merrill Lynch - and potentially other banks to follow - may be a calculated move on the part of regulators in that these investors were sold riskier securities backed by the student loan and mortgage markets and banks may not have the ability to absorb those losses.

On the same day it was announced that Citigroup and Merrill Lynch reached deals to resolve their auction rate charges, Bank of America revealed it had received subpoenas from state and federal regulators regarding its auction-rate securities practices.

Other firms under the glare of scrutiny by state and federal regulators include UBS, Goldman Sachs, Lehman Brothers, JPMorgan Chase, Morgan Stanley and Wachovia Corporation.

Moving forward, if Citigroup follows through and fulfills its commitment to buy back $7.3 billion of auction rate securities from individual investors, it will unprecedented, and one of the largest amounts recovered to date from one company.

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.Â

David Aufhauser, general counsel of Swiss-based investment giant UBS, has resigned from his legal post, following an investigation by New York Attorney General Andrew Cuomo into his involvement over the sale of auction rate securities.

News of Aufhauser’s resignation comes one week after the senior UBS executive became the focus of a lawsuit filed by Cuomo against UBS on July 24. In addition to accusing the investment bank of aggressive marketing tactics and promoting auction rate securities as safe, cash alternatives to investors, Cuomo charges that Aufhauser was among seven UBS executives who sold $21 million in personal auction holdings as soon as the market started to collapse. At the same time, the executives continued to push the securities onto unsuspecting clients.

Auction rate securities are long-term bonds that act as short-term debt because the interest rates reset at auctions held every seven, 14, 28 or 35 days. In February, the $330 billion market for the securities collapsed, creating millions of dollars in investment losses as countless individuals were left holding illiquid securities.

UBS customers currently hold approximately $25 billion in auction rate assets - assets they previously had been led to believe were the equivalent of cash. Cuomo says UBS customers are owed the full value of the securities they purchased and couldn’t resell when the auction market seized up in February.

The value of UBS customers’ auction securities is now $37 billion, according to the lawsuit.

Aufhauser’s hasty departure comes on the heels of a recent agreement by UBS to pay the state of Massachusetts $750,000 after it sued the bank on behalf of municipalities adversely affected by the sale of auction rate securities. A separate case against UBS involving auction rate securities is pending in Texas.

Meanwhile, the controversy now surrounding Aufhauser, 57, creates a black mark on a seemingly illustrious professional career. Prior to joining UBS, Aufhauser was the General Counsel of the U.S. Department of Treasury under President George W. Bush. Ironically - in light of the recent charges by Attorney General Cuomo - Aufhauser also served on the President’s corporate fraud and abuse task force.

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.

It’s become a predictable news headline: “Wall Street Firm Charged With Fraud In Auction Rate Securities Sales.” Following the collapse of the auction bond market in February, investment banks and securities firms have made a cottage industry out of reportedly deceiving investors by keeping the risk factors of auction-rate notes quiet.

Now, nearly major Wall Street player - from UBS, to Merrill Lynch, to Citigroup - is facing the wrath of state and federal securities regulators, as they answer tough questions of why they falsely promoted auction-rate notes as safe, liquid investments.

Investors are asking questions of their own - as well as taking action, with many lining up to file arbitration claims and class-action lawsuits against the Wall Street firms that they say caused them financial disaster because they were misled about the liquidity risks of the auction bonds.

For a number of these investors, the auction rate scandal ultimately will lead them to an arbitration hearing - a procedure in which two parties involved in a dispute (in this case, the investor and the broker or brokerage firm) - present various evidence to a three-member panel of “judges.”

And therein lies the problem. For claims of more than $50,000, the rules of arbitration can be an albatross for investors because the three-member panel must include an industry representative, as well as two individuals who also could have industry ties.

Columnist Jane Bryant Quinn addresses this issue in a July 30 story on Bloomberg.com, in which she writes: “The industry rep is there to explain the industry’s point of view to the other panelists - effectively, a Wall Street mouthpiece, sympathetic to the very products and practices you’re complaining about. As an “expert,” his or her opinion carries extra weight.”

In other words, investors could very well find themselves at a major disadvantage. Birds of a feather flock together. If one of the individuals on the three-member arbitration panel represents the very industry that investors contends wronged them, the likelihood they will receive a completely unbiased and fair hearing - let alone a favorable outcome - is certainly in question.

As reported in Quinn’s Bloomberg commentary, the Public Investors Arbitration Bar Association (PIABA), a national association of lawyers who represent investors in arbitrations against the brokerage industry, took up this matter with the Financial Industry Regulatory Authority (FINRA) last May when it asked for changes to be made in arbitration proceedings so as to avoid potential conflicts of interest. Specifically, PIABA wanted panelists who had worked for firms that originated or sold auction rate securities to be barred from arbitration hearings altogether.

That didn’t happen. Instead, FINRA, which runs the securities arbitration system, decided that an arbitrator would only be required to make additional disclosures if, after Jan. 1, 2005, “he or she worked for firms that sold auction rate securities, sold them themselves or supervised anyone who did.”As an added catch, FINRA also ruled that it would be the responsibility of the lawyers for the investors (or the investors themselves if they are going it alone) to decide whether to elect those arbitrators as part of the three-member panel.

And that can cause a host of problems during the actual selection process for the three individuals to comprise the arbitration panel. Each party in the arbitration dispute is given three lists of names, which have been created from an arbitrator pool and randomly selected via computer, according to Quinn’s article. One list contains names of industry panelists and two other lists have names of public members. Both sides can disallow, for any reason, up to four names on all three lists.

However, in that individuals involved with auction-rate securities could be in the panelist pool, investors’ lawyers are forced to use up their four challenges to strike them. After that, they are simply out of luck and must live with the names they get.

In December 2007, PIABA testified before Congress, asking that it abolish FINRA’s rule of requiring one of the three securities arbitrators to be associated with the securities industry. PIABA also requested that FINRA adopt new rules to ensure arbitrators on a panel have no ties or connections to brokerages or industry associations.

To no one’s surprise, FINRA - which is a private regulator for more than 5,000 U.S. brokerage firms - is against PIABA’s suggested reforms.

However, in an attempt to address criticism over the arbitration process, FINRA announced a two-year pilot program on July 24 that would give investors the option of having their cases heard solely by an all-public panel. Over the two-year period, 400 cases could be heard by panels consisting of investor peers. At the conclusion of the pilot, FINRA says it plans to conduct a study to determine the differences between all-public and nonpublic arbitrators, how cases settle in the two different forums and which option customers more readily choose.

So far, several major brokerage houses, including UBS, Merrill Lynch and Morgan Stanley, have agreed to participate in FINRA’s program. The first 40 clients of those firms who file arbitration cases after Oct. 6 will have the option of choosing either an arbitration panel of only public representatives or a panel with a member of the financial services industry.

Meanwhile, critics of mandatory industry panelists are calling the pilot program a long time in coming and finally a move in the right direction. Removing the industry representative component out of the three-member panel structure not only sheds the David-and-Goliath persona associated with arbitration proceedings involving auction rate securities but also is a critical and essential step to restoring faith in the process and allowing investors to believe that their voice may actually be heard this time around.

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.

First UBS, now Citigroup. After a five-month investigation, New York Attorney General Andrew Cuomo says he plans to sue the nation’s largest U.S. bank, accusing Citigroup Inc. of employing fraudulent marketing tactics to unload auction rate securities onto unsuspecting investors.

In a letter sent to Citigroup’s legal counsel on Aug. 1, Cuomo contends Citigroup destroyed key documents under subpoena by the state, as well as repeatedly and persistently committed fraud by assuring customers that auction rate securities were as liquid as cash.

Cuomo plans to charge Citigroup under New York’s Martin Act, which allows both civil suits and criminal action in securities cases.

Cuomo joins the Securities and Exchange Commission (SEC), which also is investigating Citigroup for its alleged improprieties regarding auction rate securities sales. In addition to the SEC’s probe, various state regulators have issued subpoenas and requested information from Citigroup over its auction bond sales and marketing practices.

Auction rate securities are long-term bonds whose interest rates reset at auctions held every seven, 14, 28 or 35 days. Following a tightening of the credit markets and a lack of bidders for the securities, investment banks abandoned their role as buyers of last resort for the auction bonds. As a result, the $330 billion auction bond market abruptly shut down in February 2008, leaving investors with billions of dollars in illiquid securities.

At the center of Cuomo’s claims against Citigroup is the apparent destruction of telephone recordings of conversations connected to auction rate securities. Cuomo’s office had subpoenaed Citigroup for the recordings in April and was informed on June 30 by Citigroup that the recordings had been destroyed and it was unlikely data could be recovered.

“Verbatim records of the most important witness statements during the most relevant period were therefore destroyed after the issuance and service of the subpoena,” Cuomo said.

Cuomo wants Citigroup to buy back the affected auction securities at face value and pay both damages to investors, as well as a significant penalty.

In separate Citigroup news, the bank says it is cooperating with government and regulatory requests for information regarding its ASTA Fund and MAT Fund. The two highly leveraged municipal bond funds have been the subject of numerous class-action lawsuits in recent months, after plummeting in value. Since then, many investors have come forth with claims they were victims of deceptive marketing practices by brokers who pitched the funds as “safe” and “secure” alternatives to traditional bond funds and not subject to significant amounts of volatility.

In reality, the ASTA Fund and MAT Fund were very risky investments. Despite the fact safety had been their main selling point, the funds ultimately lost up to 90% of their original value.

Moving forward, the apparent missteps by firms like Citigroup, UBS and countless others over auction rate bonds, hedge funds or the like are proving not only to distract from the day-to-day operations of their business but also may irreversibly undermine the most valuable and critical asset a company can have: its reputation.

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.

A former Credit Suisse broker who is the target of a federal investigation into an auction-rate securities scam has been declared missing and likely left the United States for his home in Bulgaria.

Bulgarian-born Julian Tzolov and Eric Butler are two former Credit Suisse brokers accused of lying to investors about how they invested their money in auction-rate securities. The two men resigned from Credit Suisse on Sept. 7, 2007.

In other auction-rate securities news, UBS has agreed to pay Massachusetts $4.4 million as part of a settlement involving allegations by the state that it misrepresented the securities to municipalities.

Massachusetts securities regulators launched an investigation into UBS and its marketing practices of auction-rate securities in February, following complaints that the Swiss-based bank had deceived clients when it sold them the securities.

Of the $4.4 million settlement, $1 million will go toward state fees and to educate government officials about appropriate investments for their money.

The remaining funds will allow Massachusetts cities and agencies to redeem the full value of their securities from UBS, according to Massachusetts Attorney General Martha Coakley.

The $4.4 million settlement now brings the total amount that UBS has paid to Massachusetts over its mishandling of auction-rate securities to $41.3 million, following a $37 million partial settlement that the bank agreed to in May.

Meanwhile, Texas is now on the trail of UBS. The securities board in the Lone Star State is considering barring the bank from doing business in Texas, in which UBS’ wealth management unit has approximately $65 billion in assets under management.

Auction-rate securities are municipal bonds, corporate bonds, and preferred stocks in which interest rates or dividend yields reset through auctions held every seven, 14, 28, or 35 days. In February 2008, Wall Street investment banks and securities firms pulled out of the auction market, thereby setting off a chain reaction of auction failures.

As a result, thousands of investors have been left in limbo. Initially sold on auction-rate securities because of their supposed cash-like nature, they now find themselves holding illiquid investments.

Many investors have since taken their frustration out in court. According to a study by NERA Economic Consulting, a New York economic-consulting group, shareholder class-action filings have risen substantially in 2008, and expected to reach a 42% increase by year end - the largest annual rise since 2002.

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.Â