Office of the Attorney General: N.J. Bureau of Securities Participates in Settlement With UBS; Auction Rate Security Investors Recover Billions

FROM THE OFFICE OF THE ATTORNEY GENERAL

August 08, 2008

Contact: Jeff Lamm
973-504-6327


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 Securities LLC and UBS Financial Services, Inc. that 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 (ARS) market.

Under the settlement, UBS will -- prior to January 2009 -- buy back all illiquid auction rate securities, totaling more than $11 billion, from all UBS retail customers, charitable organizations and small to mid-sized businesses. For those retail customers and charitable organizations with less than $1 million on deposit, the settlement requires UBS to buy back the securities before October 31, 2008.

Additionally, 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.

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 role 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.

“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. The continuing efforts by the Bureau’s Enforcement Chief Richard Barry have again resulted in a positive outcome benefiting New Jersey investor victims,” said Bureau of Securities Deputy Chief Amy Kopleton.

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.