NEW YORK (Reuters) - Texas is considering at least partly suspending UBS AG UBSN.VX from acting as a securities dealer in the state until Texans who invested in auction rate paper get their money back, the state securities board said in a notice filed late Tuesday.
UBS in a statement on Wednesday said “The firm believes this requested relief is unwarranted, and we will defend ourselves vigorously.” The bank added it continued to do business “as usual” in Texas and was cooperating with the state.
Auction rate securities are long-term debt whose rates are reset periodically. The $330 billion market started failing in late January because investors, fearing that the bond insurance companies that guaranteed principal and interest payments would lose their top ratings, overloaded dealers with paper.
A Texas administrative law judge on September 22 will hold a hearing and propose a decision that then will be ruled on by Texas Securities Commissioner Denise Voigt Crawford.
The commissioner, a 15-year veteran, said it would not be appropriate for her to discuss the UBS notice. She added that state law barred her from commenting on whether any other banks would face similar probes.
The securities board proposed three remedies: suspending “some or all activities” by UBS until the bank liquidates investors’ auction rate securities at par, ordering the bank to “cease and desist engaging in fraudulent conduct” regarding the sale of the securities, and assessing an administrative fine.
UBS also said it supported the auction rate market “longer than any other firm,” adding it had about $11 billion of this paper on its books when the first quarter of 2008 ended.
The Texas inquiry is one of several facing the Swiss bank, which has long catered to wealthy individuals who were often big investors in auction rate paper.
For example, Wednesday’s Wall Street Journal said New York attorney general Andrew Cuomo is preparing to file civil securities-fraud charges against UBS AG UBSN.VX, possibly as early as this week.
Cuomo’s lawsuit could also include allegations of wrongdoing by senior UBS executives, the newspaper said, citing people familiar with the probe. It was not clear which individuals would be named or whether charges against individuals would be filed, it added.
In April, Cuomo and securities regulators in several U.S. states launched an investigation into auction-rate securities and the role of Wall Street firms, including UBS, in attracting investors into the troubled market.
The office of the New York state attorney general and UBS did not return calls seeking comment.
Additional reporting by Varsha Tickoo in Bangalore; Editing by James Dalgleish