New York Attorney General Andrew Cuomo filed a civil lawsuit on Thursday against UBS, accusing the Swiss bank of steering customers into auction-rate securities that this year became impossible to cash out of amid the credit crunch.
The suit, filed in New York state court, accuses UBS of deceptively selling auction-rate securities to customers as cash equivalents.
Shares of UBS spacer dropped more than 4 percent on the New York Stock Exchange after Cuomo's announcement. (Learn more by clicking on the accompanying video.)
UBS said in a statement it would "vigorously defend" itself the charges brought by Cuomo.
"It is frustrating that the New York Attorney General has filed this complaint while we have been fully engaged in good faith negotiations with his office to bring liquidity to our clients holding auction rate securities,"' the Swiss bank said.
Cuomo also accused several senior UBS executives of wrongdoing, saying subpoenaed e-mails detail how they dumped $21 million in personal holdings as the auction-rate market collapsed while still pushing securities to customers.
"UBS also continued the fraud after they knew the fraud was revealed for what it was," Cuomo said at a news conference.
"After the auctions were failing they continued to sell the auction-rate securities." He said "UBS is not alone in this scheme, there are other institutions which participated, but UBS is a major player." The lawsuit is expected to be the first in a series of cases to arise from the state's investigation into Wall Street's handling of the $330 billion auction-rate securities market.
The short-term investments, long touted as being as liquid as cash, lost their value after brokers stopped supporting the market in late January.
The lawsuit is expected to be the first in a series of cases to arise from the state's investigation into Wall Street's handling of the $330 billion auction-rate securities market.
The short-term investments, long touted as being as liquid as cash, lost their value after brokers stopped supporting the market in late January.