UBS Financial to return $37M to cities, towns, MTA
The attorney general’s office reached an agreement today with UBS Financial Services Inc. and UBS Securities LLC, under which UBS will return to various Massachusetts towns, cities and other government entities the funds invested in auction-rate securities by the entities in their general funds accounts at UBS.
In February, the attorney general’s office began investigating allegations that UBS misled towns, cities and state and municipal entities regarding whether auction rate securities were a permissible investment for the municipalities under Massachusetts Law.
The various towns, cities and other entities will recover nearly $37 million in repaid principal, according to the attorney general’s office.
“We appreciate that UBS has taken action to return the invested monies to our cities, towns and other government entities,” Attorney General Martha Coakley said in a statement. “In these tight financial times, Massachusetts municipalities need to have access to their monies and to invest them appropriately.”
Coakley said her review of potential penalties under the False Claims Act, and her review of certain municipal trust fund accounts, is ongoing.
An auction rate security is a debt instrument, such as a bond, or preferred stock for which the interest rate or dividend is periodically reset through an auction mechanism. In some instances, towns and cities were persuaded to invest their cash accounts into these auction rate security accounts, according to the attorney general’s office.
Although these securities have long-term maturities of many years, they historically have been offered for sale at weekly or monthly auctions. In early 2008, however, the market for auction rate securities dried up and the auctions through which they were sold experienced widespread failures.
When an auction fails, liquidity disappears from the market as it becomes difficult to dispose of such securities at all, let alone at par value. Many such securities have been written down to reflect their reduced market value.
Auction rate security investments have been frozen since early this year due to lack of market liquidity, and the value of many of the municipal investments have been written down by UBS.
Since the auction failures, the Massachusetts cities, towns and other government entities who have invested in auction rate securities have been forced to hold these securities in order to avoid principal losses, according to the attorney general’s office. UBS’s action will allow these entities to recover these frozen funds.
Amount to be reimbursed by UBS, by government entity
Town of Winchester: $6,750,000
Town of Barnstable: $6,125,000
City of Chicopee: $5,975,000
Massachusetts Turnpike Authority: $4,353,444
City of Holyoke: $3,200,000
Town of Dedham: $2,100,000
Town of Hudson: $2,100,000
Town of Andover: $2,000,000
Town of Needham: $1,225,000
Town of Wayland: $525,000
Town of Boylston: $500,000
Town of East Longmeadow: $500,000
Town of Westborough: $500,000
Town of Merrimac: $325,000
Town of Whitman: $250,000
Town of Belchertown: $225,000
Town of Warren: $125,000
Town of Mattapoisett: $100,000
Total: $36,878,444
Written by John Ouellette
