N.J. Bureau of Securities Participates in Settlement With UBS;
Investors to Recover Billions in Auction Rate Securities
NEWARK — New Jersey Attorney General Anne Milgram announced today that the N.J.
Bureau of Securities, as part of a national task force with other state regulators,
and the Securities and Exchange Commission reached a settlement with UBS, which
will give thousands of UBS clients, including New Jersey investors, access to
billions of dollars in funds that have been frozen in the auction rate securities
Under the $19.4 billion settlement, UBS will reimburse all retail investors,
including those from New Jersey, who sold their auction rate securities at a
discount after the market failed.
The settlement concludes an investigation into allegations that UBS misled its
clients by falsely assuring them that ARS securities were as safe and liquid
as cash. The N.J. Bureau of Securities played a significant by investigating
specific complaints originating from New Jersey investors and taking an active
role in the settlement negotiations.
The ARS markets froze in February this year, triggering a flood of complaints
from investors who could not withdraw money from their accounts. States, including
New Jersey, received complaints from a wide range of investors who suffered significant
financial damage because the money they were told was liquid was tied up in the
frozen ARS market.
UBS will pay a $75 million penalty to the States, with a pro-rata share payable
to New Jersey, as well as an additional $75 million penalty to New York State.
The penalties reflect issues arising from UBS' sale of auction rate securities
to investors as well as Citigroup's destruction of records required to be maintained
under state law.
"New Jersey's participation in this national investigation reflects its continued commitment to protect New Jersey investors, and the settlement provides necessary relief to investors who were mislead into believing that their auction rate security investments were liquid and as safe as cash" said Attorney General Milgram.
Consumer Affairs Division Director David Szuchman stated that, "This settlement with UBS resulted from a well-coordinated national effort that New Jersey participated in."
"The resolution today represents another major step in the Bureau's efforts with other state regulators to obtain much needed relief for investors whose auction rate securities were frozen and their value impaired," said Bureau Chief Vincent J. Oliva.
The investigation into possible violations by UBS is part of a larger state-led effort to address problems in connection with the offer and sale of ARS securities. Earlier this year, state offices began receiving hundreds of complaints from Main Street investors. As a result, in April, NASAA announced the formation of a multi-state Task Force, comprised of securities regulators in 12 states, including New Jersey, to investigate whether the nation's prominent Wall Street firms had systematically misled investors when placing them in ARS securities.
The members of the Task Force and the New Jersey BOS are continuing their investigations into possible misconduct by other firms. To date, enforcement actions alleging fraud and other violations in connection with ARS securities have been filed by Massachusetts, New York, and Texas against UBS. In addition, Massachusetts has filed an action against Merrill Lynch.