Swiss finance giant UBS intentionally misled its clients into believing that risky Auction Rate Securities were as safe and as liquid as cash, claims a lawsuit filed by a Massachusetts securities regulator. NYT:
In the complaint, William F. Galvin, secretary of the Commonwealth of Massachusetts, cited numerous and sometimes urgent e-mail messages indicating that as early as last August UBS executives knew the market was imperiled. As sellers began to outnumber buyers, the messages show, UBS executives urged the sales force to promote the notes and shares as aggressively and widely as possible.
“The thing that is most amazing to me is what a comprehensive and deliberate strategy this was by UBS,” Mr. Galvin said. “They wanted to reduce their inventory, so they decided to gear up their sales campaign using cashlike arguments deliberately.”
UBS has denied the allegations, insisting: “We will defend the specific allegations of the complaint. Contrary to the allegations, UBS is committed to serving the best interests of our clients.”
We look forward to seeing the evidence, but we suspect the larger mistake was the perennial error that “cash-like” securities are the same thing as “cash.” Alas…