New York Sues UBS in Auction Rate Probe

New York State on Thursday filed a multibillion securities fraud lawsuit against UBS(UBS Quote - Cramer on UBS - Stock Picks) for allegedly overstating to investors the safety of auction rate securities.

Attorney General Andrew Cuomo said in the suit that UBS presented the instruments as if they were cash equivalents on clients account statements. The suit, brought against UBS Securities and UBS Financial Services , alleges that as the market began to reverse for the instruments, top UBS executives unloaded personal ARS holdings to the tune of $21 million, while continuing to aggressively market them.

UBS denied any wrongdoing. Spokesperson Katrina Byrne said in a company statement said that UBS conducted its own internal investigation into personal holdings of ARS and did not uncover any illegal conduct, but admitted to finding cases of poor judgment by certain individuals.

"It is frustrating that the New York Attorney General has filed this complaint while we have been fully engaged in good faith negotiations with his office to bring liquidity to our clients holding auction rate securities," she said.

The lawsuit seeks to require UBS to buy back auction rate securities from defrauded customers at par. It also seeks disgorgement of ill-gotten gains, restitution and other damages, and injunctions from further violations of New York's Martin Act.

Byrne noted UBS "was first to offer" affected clients loans of up to 100% the original value of their ARS holdings at preferred rates. "UBS has dedicated significant resources and substantial effort to find solutions for its clients in this unprecedented ARS market crisis," she said. "UBS has acted in the clients' best interests in this matter. "

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