UBS Financial Services, Inc. and UBS Securities LLC entered into an agreement Wednesday with the Massachusetts Attorney General to return over $35 million to Massachusetts towns, cities and government entitities that UBS had invested in auction rate securities. The settlement resolves an investigation initiated in February 2008 into allegations that UBS had misrepresented to state entities that auction rate securities were “a permissible investment for the municipalities under Massachusetts law.” Whether or not auction rate securities were a permissible investment turns on whether or not such investments were appropriately viewed as liquid or illiquid, an issue that the investigation has in common with many private complaints concerning alleged misrepresentations concerning auction rate securities.
Pursuant to the agreement, UBS will repurchase more than $35 million of auction rate securities from the Massachusetts governmental entities. Notably, the Massachusetts Attorney General’s press release concerning the settlement states that “review of potential penalties under the False Claims Act, and [the] review of certain municipal trust fund accounts, is ongoing.”