Massachusetts authorities sued two subsidiaries of Swiss bank UBS Thursday, charging they misled investors about how safe auction rate securities were.
The complaint, filed by William Galvin, the state's top securities regulator, accuses UBS Securities and UBS Financial Services of aggressively selling the instruments to customers at a time when large money managers were losing faith in them and a top UBS executive was dumping them from his personal holdings.
"UBS pushed the sales of these instruments as 'cash alternatives' without telling their customers of their vulnerabilities," Galvin said in a statement.
Galvin is seeking to get the UBS units to return investors' money and reimburse investors who had to sell at a loss.
Earlier this year Galvin's office issued subpoenas to UBS Securities, Merrill Lynch and Bank of America to determine whether the banks had appropriately informed investors about the potential risks of such investments.
The market for them sank in February.