Market Ignores UBS Auction-Rate Legal Loss

Shares of Wall Street banks, including UBS, were unaffected by a big legal blow.
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NEW YORK (

TheStreet

) -- A large arbitration panel ruling against

UBS

(UBS) - Get Report

in a case involving auction-rate securities appears to have been met with a giant yawn by investors.

In the case, arbitrators ruled UBS must pay $80.8 million to

Kajeet

, a company that markets cellphones to children. That is more than 10 times the $8 million Kajeet had invested in the securities, according to a report in Thursday's

The Wall Street Journal

.

The case would seem to have big implications for companies across Wall Street, including

Citigroup

(C) - Get Report

,

Morgan Stanley

(MS) - Get Report

and

JPMorgan Chase

(JPM) - Get Report

, all of which were forced to buy back billions in auction-rate securities as part of a settlement with New York Attorney General Andrew Cuomo.

Bank of America

(BAC) - Get Report

and

Wells Fargo

(WFC) - Get Report

are also exposed to such cases, since

Merrill Lynch

and

Wachovia

were also major players in the auction-rate securities market.

All of those companies were forced to buy back billions in auction-rate securities as part of a settlement with New York Attorney general Andrew Cuomo. However, there are still more than 650 legal claims outstanding--a number sure to grow following the latest decision against UBS.

Auction-rate securities, a $300 billion market, according to the

Journal

were marketed to investors as super-safe instruments but the market seized up in 2008, preventing investors from getting access to their money. Kajeet successfully argued that the damage to its business from this event far exceeded the amount of money it invested in auction-rate securities.

Nonetheless, shares of UBS actually opened higher, and were down just three cents to $17.26 in midday trading. Other banks with big exposure to similar auction-rate security cases were also down only slightly, consistent with the broader market.

Jacob Zamansky, an attorney with several cases pending against big Wall Street firms, believes the implications of the case go beyond auction-rate securities.

"This is a very significant case. It shows that arbitration panels are willing to award consequential damages where it's been proven that there's a securities

law violation. In this case it was a 10-fold award and that's really an eye opener for Wall Street," Zamansky says.

But Rochdale Securities analyst Dick Bove thinks the decision, which UBS is contesting, will be overturned.

"To award the plaintiff 10 times what the actual value of the securities was--I don't see how that stands," Bove says.

There is also some skepticism about whether the ruling in the UBS case will prove to be a benchmark for other cases.

"It is an off-the-charts recovery but I do not think that it is the start of any trend," wrote Columbia University securities law professor John Coffee, in an e-mail exchange with

TheStreet

.

--

Written by Dan Freed in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.