Office of Financial and Insurance Regulation (OFIR) has reached an Auction Rate Securities (ARS) settlement with UBS Securities and UBS Financial Services. The settlement requires UBS to offer full buybacks of up to approximately $875m to any eligible Michigan customer who purchased an ARS from the brokerage firm.
The settlement also required UBS to make a settlement payment of approximately $2.2m of which 90% was deposited immediately in the State of Michigan’s general fund, as required by law, and the remaining 10% went to OFIR’s Michigan Investor Protection Trust.
The settlement with UBS is in addition to OFIR’s previous ARS settlements with Banc of America, Citigroup, Comerica, Deutsche Bank, JP Morgan, Merrill Lynch, Morgan Stanley, RBC Capital Markets and Wachovia.
The settlement resolves a multi-state investigation into allegations that UBS misled investors regarding the liquidity risks associated with investing into ARS.
The investigation alleged that the firm misled investors by representing ARS as a safe and secure investment option to buyers and were said to have the same liquidity as cash. But when the market for ARS collapsed, UBS claims turned false as investors’ accounts were frozen and they no longer had access to their money.