Dow reaches another ARS settlement

By Keith Loria | Feb 9, 2011


NEWARK, N.J. (Legal Newsline) - New Jersey Attorney General Paula Dow announced on Monday that her office has settled with a major securities firm that allegedly sold auction-rate securities without full disclosure about the risks involved.

UBS Securities LLC and UBS Financial Services Inc. allegedly had their dealers sell auction-rate securities to New Jersey clients without disclosing the known risks of the ARS market.

The company marketed auction-rate securities as a safe investment. In reality, however, they are long-term investments subject to a complex auction process, Dow says.

A lawsuit alleged that UBS securities dealers never informed customers of the firm's participation in creating artificial demand in auctions when demand faltered or explained the risks associated with buying ARS properly.

"Disclosure of material facts to the investing public is not only the law, but is necessary for consumers to make fully informed decisions about investing their hard-earned money," Dow said. "Investors suffered because of this firm's failure to disclose known risks."

Under terms of the agreement, UBS will offer to repurchase $1.5 billion worth of ARS that it sold to state investors.

UBS must also pay $3,790,487 in civil penalties to the state to cover New Jersey's pro-rata share of a settlement negotiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association.

"We continue to monitor the securities industry in New Jersey, to ensure compliance with our state laws," Thomas R. Calcagni, acting director of the Division of Consumer Affairs, said. "We're ready to act, as we've done in this matter, to protect investors when our laws are not followed."

The ARS problem is one that Dow and her office have tackled a great deal recently. This is the eighth such settlement that the bureau has reached with firms that sold ARS. Over $2.5 billion of these assets have been repurchased by the firms.

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