UBS today announced it reached a comprehensive settlement in principle with U.S. federal and state regulators over charges relating to its auction-rate securities business.
The agreement would commit UBS to purchase a total of $8.3 billion of auction-rate securities from high-net-worth clients and $10.3 billion from institutional clients over the next three years.
In a news release, UBS said the estimated costs of the settlement would come to $900 million, including a $75 million fine to be paid to the state of New York and another $75 million in combined payments to other state regulatory agencies.
The agreement would settle outstanding charges leveled against UBS by New York’s attorney general, the Massachusetts Securities Division, the SEC and other agencies, following the collapse in early February of the weekly and monthly auctions that provided liquidity to clients who invested billions of dollars combined in those securities. In the absence of those auctions, clients have been unable to withdraw their money.
State regulators had charged UBS with dumping its inventory of auction-rate securities on clients at the same time key employees of the firm were selling their holdings in late 2007 and early 2008, in anticipation of a market breakdown.
The UBS news release said the agreement in principle would commit the firm to purchase a total of $8.3 billion of auction-rate securities, at par, from private clients during a two-year period beginning Jan. 1, 2009, while providing loans, at no cost to the clients, for the par value of their holdings from mid-September. Additionally, the agreement would commit UBS to provide liquidity solutions to institutional investors, and agree to purchase any and all of those holdings at par from June 2010.
