U.S. News

Mass.  Accuses UBS of Providing Hedge-Fund Traders with Favors: WSJ


The state of Massachusetts accused UBS of providing hedge fund traders with favors intended to win brokerage business for the investment bank, according to a report.

An administrative complaint filed by Secretary of State William Galvin accused UBS of running what he described as a "hedge fund hotel" catering to hedge fund traders, the Wall Street Journal reported.

Alleged sweeteners included below-market rent for leased office space, low interest personal loans and tickets to Red Sox baseball games, the report said.

A UBS spokeswoman in New York declined comment, according to the Journal.

When Galvin announced the probe, UBS said it was co-operating.

Galvin said the arrangements create a conflict that hurts investors unaware the funds may be paying higher than normal brokerage fees to UBS in exchange for the favours, the report said.

"Unbeknownst to the pension funds, university endowments, charitable foundations, institutional investors and individuals who invest in hedge funds, the gifts and gratuities for the hedge fund advisers come with implicit and sometimes explicit quid pro quos," the complaint reportedly said. "UBS requires the hedge fund advisers to cause the hedge funds they manage to meet certain benchmarks of profitability for UBS or ensure they do not use other prime brokers."

Galvin brought the case more than six months after saying he was investigating, industry-wide, whether hedge funds were paying higher than normal brokerage fees to compensate the investment bank for office space.

The complaint against UBS seeks a cease-and-desist order, a censure and an administrative fine, the newspaper said.