UBS Admits It Mischaracterized Auction Rate Securities
It is well known in the news business that if you want to bury a story, you release it late on a Friday afternoon. UBS did exactly that with its announcement on Friday March 28 that it was forcing its clients to take a haircut on auction-rate securities that investors had been told were as safe as cash. UBS will also re-classify auction-rate securities from “cash equivalents” to “fixed-income securities” on customer statements starting in April. This reclassification alone supports the contention of many investors that they were misled when they purchased these investments.
Needless to say, the investors in auction-rate securities are not happy. They were sold these auction-rate securities as a safe place to park cash that paid higher yields than savings accounts or money-market funds. Thus they invested cash that was being stashed for immediate needs such as tuition, home down payments or medical needs. As the auctions failed when not enough buyers showed up and the investment banks stopped stepping in to support the financings, the investors got stuck in an investment they could not sell at any price.
UBS has begun to lower the value of auction–rate securities held by its clients using an internal computer model. The markdowns will range from 3% to more than 20%. Investors are also questioning the accuracy of the models that will price the securities.
Until now, UBS had told its customers that the auction-rate securities retained full value. UBS’s actions in marking down the securities will give the investors paper losses. UBS is not offering to buy the securities at the new price. According to UBS, only 13% of the auction-rate securities will retain their full value. More than two thirds will see small cuts in value ranging up to 3%.
It is expected that the other major Wall Street firms will follow UBS and mark down the value of auction-rate securities. Already, UBS, Deutsche Bank. Merrill Lynch, Morgan Stanley, and Citigroup have been sued in federal actions allegedly deceptive marketing of auction-rate securities. With these developments, more lawsuits are sure to be filed.
Investors in auction-rate securities must review their holdings to see how much of a loss they are being forced to recognize and take the appropriate steps to protect their nest eggs and recoup their losses.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their auction-rate securities investment problems. For further information, please contact us.
