* * * * * * * * * * * * * * * * *
IN THE MATTER OF: UBS SECURITIES LLC * * * * * * * * * * * * * * * * * |
* * * * * * * * * * |
CONSENT ORDER DOCKET NO. CO-10-7506-S |
I. PRELIMINARY STATEMENT
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, the UBS Entities, through their execution of this Consent Order, each voluntarily waive the following rights:
1. |
To be afforded notice and an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27(a) of the Act and Section 36b-27(d)(2) of the Act and Section 4-177(a) of the General Statutes of Connecticut; |
2. |
To present evidence and argument and to otherwise avail themselves of Sections 36b-15(f) and 36b-27(a) of the Act and Section 36b-27(d)(2) of the Act and Section 4-177c(a) of the General Statutes of Connecticut; |
3. | To present their respective positions in a hearing in which each is represented by counsel; |
4. | To have a written record of the hearing made and a written decision issued by a hearing officer; and |
5. | To seek judicial review of, or otherwise challenge or contest the matters described herein, including the validity of this Consent Order; |
NOW THEREFORE, the Commissioner, as administrator of the Act and of the Regulations, hereby enters this Consent Order.
III. JURISDICTION AND CONSENT TO ENTRY OF CONSENT ORDER
1. |
The UBS Entities each admit the jurisdiction of the Commissioner, neither admit nor deny the Findings of Fact and Conclusions of Law contained in this Consent Order, and consent to the entry of this Consent Order by the Commissioner. |
IV. RESPONDENTS
2. | UBS Securities LLC (“UBS Securities”) has been registered as a broker-dealer under the Act since at least August 1991; |
3. | UBS Financial Services Inc. (“UBS Financial Services”) has been registered as a broker-dealer under the Act since December 1, 1970; |
V. FINDINGS OF FACT
A. How the UBS Entities Marketed and Sold ARS to Their Clients
UBS Wealth Management’s FAs Represented ARS to Clients as Safe,
Liquid, Cash Alternatives to Money-Market Instruments
4. | Customers of the UBS Entities in Connecticut were sold ARS and, in most instances, were told they were safe, liquid money-market instruments. |
5. |
Many customers of the UBS Entities were told that the interest rates on these instruments were set periodically through the functioning of deep, liquid, fully functioning auctions that had never failed for 20 years. Some were not told about the auction process at all, but simply thought they were buying short-duration instruments. |
6. |
Many customers of the UBS Entities were not told that the auction rate product available to them was limited, for the most part, to ARS that UBS Securities underwrote. |
7. | Many customers of the UBS Entities were not apprised of the risks of ARS, including the risk of failed auctions or a market freeze. |
8. |
Many customers of the UBS Entities were not told that UBS Securities had a policy of placing support bids in every auction for which it was the sole or lead broker-dealer, that UBS Securities routinely intervened in the auction markets to set the interest rates, that certain potential conflicts of interest existed between the UBS Entities and their customers, that in August 2007 UBS Securities changed its policy of placing support bids in every auction for which it was lead broker-dealer and allowed some of the ARS it had underwritten to fail, or that after November 2007 the UBS Entities were actively considering scenarios that included ceasing their practice of supporting their auctions. |
9. |
After the UBS Entities decided to stop supporting their auctions, these clients were informed that the market for these instruments had frozen and that they no longer held liquid short-term instruments but instead held instruments with long or perpetual maturities for which no market existed. Many of those instruments are no longer valued at par on UBS Financial Services’ account statements. |
UBS Entity Financial Advisors Who Sold ARS to Clients Understood them to be
Safe, Liquid Cash Alternatives or Money Market Instruments
10. |
The UBS Financial Services Financial Advisors (“FAs”) that the task force interviewed had not received any specific instruction or compliance training from the UBS Entities with respect to ARS. |
11. |
The FAs that the task force interviewed did not have even the most basic understanding of how ARS worked until after the UBS Entities pulled out of their auctions in February 2008. |
The UBS Entities Did Not Provide Their Financial Advisors With Any
Mandatory Training With Respect to ARS
12. | The UBS Entities did not provide their FAs with mandatory training regarding ARS. |
13. |
In testimony provided to the Task Force, the Director of Product Management for UBS Financial Services (“Director of Product Management”) indicated a wide range of information that FAs should know prior to selling ARS to customers, including who the issuer is, what type of auction rate security it is, what the credit quality is, how the auction process works, and that a customer bid may or may not get filled for that auction. |
14. |
However, the UBS Entities did not provide mandatory training or specifically instruct their FAs to apprise themselves of this information or provide customers with the information. |
The UBS Entities Marketed ARS to Clients as Safe, Liquid Instruments
15. |
Clients of the UBS Entities with whom the Task Force spoke uniformly stated that ARS had been marketed to them as completely liquid, safe money-market type instruments. |
16. |
UBS Financial Services posted on its public website a marketing piece “Cash & Cash Alternatives Addressing Your Short-term Needs,” which included Auction Preferred Stock and Variable-Rate Demand Obligations as a cash alternative. |
17. |
Similarly, in August 2007, the UBS Entities circulated “Investment Intelligence” magazine, which is “a quarterly ‘statement stuffer’ that is sent to all [UBS Financial Services] retail clients and available to employees on the intranet.” The featured topic was “Planning Your Retirement Cash Flow Strategy.” The feature included Auction Preferred Stock, Auction Rate Certificates, and Variable-Rate Demand Obligations as cash alternatives. It also invited customers to request a copy of Putting Liquidity to Work: A Guide to Cash Alternatives, which is a brochure the UBS Entities made available to Financial Advisors to provide to clients starting in 2004, and which was posted on a firm external website in October 2007. This Guide identified a number of risks relating to ARS, including the risk of auction failure, the UBS Entities’ routine support of the auctions, the lack of any obligation that the UBS Entities continue to support the market, and the conflicts of interest arising from the UBS Entities’ multiple roles in the auction market. |
ARS Were Listed Under the Heading “Cash Alternatives / Money Market Instruments”
on UBS Financial Services’ Client Statements Through January 2008
18. |
Through January 2008, the client statements issued to retail customers listed APS under the heading: “Cash Alternatives/Money Market Instruments.” |
19. |
In the February 2008 client statements, UBS Financial Services had removed the heading “cash alternatives/money market instruments” from its client statements. ARS were then referred to as “cash alternatives/other.” |
20. |
For the May 2008 and subsequent statements, the heading on UBS Financial Services’ account statements under which ARS appeared was changed again to “fixed income/ARS.” |
21. |
Student-loan auction rate certificates (“Student Loan ARCS”) had been listed under the heading “Cash Alternatives/Municipal Securities.” This heading has now been changed to “Fixed Income/ARS.” |
The UBS Entities Did Not Disclose Key Aspects of Their ARS Program to Clients
22. |
The UBS Entities did not have any mandatory disclosures regarding ARS that its FAs were required to make. |
23. |
On this topic, the Director of Product Management testified that FAs were not required by any specific policy to inform clients of the possibility that auctions might fail. He said that he did not believe that FAs were required to inform clients that UBS Securities routinely intervened in the auction markets to prevent failure and to place a ceiling on clearing rates. He also testified that UBS Financial Services’ FAs were not informed that UBS Securities’ inventory of ARS had exceeded the $2.5 billion cap, though FAs would have been able to tell that UBS Securities’ inventory was growing rapidly in January and February 2008 through the trading systems available to them. |
B. The UBS Entities' ARS Program Was At Odds With How It Was Being Promoted
to Clients and Financial Advisors
Background on Mechanics of ARS
Dutch Auction Process
24. |
A Dutch auction is a competitive bidding process used to determine rates of interest on an instrument on each auction date. Bids are submitted to the auction agent by the investors interested in buying or selling their securities. The auction agent matches purchase and sale bids and the winning bid is the highest price (equivalent to the lowest rate) at which the auction clears. At the auction a holder may submit one of the following orders:
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25. |
References to ARS herein shall include three separate categories of instruments: APS of closed-end funds, municipal auction rate certificates, and Student Loan ARCS. |
Types of Auction Rate Securities
Auction Preferred Shares ("APS")
26. |
APS are equity instruments without a stated maturity issued by closed-end funds. They are collateralized by the assets in that fund and typically receive ratings from the major rating agencies. Interest rates are intended to be set in a Dutch auction process with auction cycles typically of 7 or 28 days. Typically, they have a maximum rate above which the interest rate cannot be set in an auction. |
Municipal Auction Rate Certificates
27. |
Municipal auction rate certificates (“Municipal ARCS”) are debt instruments (typically municipal bonds) issued by governmental entities with a long-term nominal maturity and a floating interest rate that is intended to be reset through a Dutch auction process. They receive long-term ratings from the major rating agencies and are often backed by monoline insurance. |
Student Loan-Backed Auction Rates Certificates
28. |
Student Loan-backed auction rate certificates (“Student Loan ARCS”) are long-term debt instruments issued by trusts which hold student loans. Interest rates are intended to be set in a Dutch auction process, and typically they have a maximum rate above which the interest rate cannot be set in an auction. They receive long-term ratings from the major rating agencies. |
The UBS Entities' ARS Program
Underwriting
29. | UBS Securities was one of the largest underwriters of Municipal ARCS and Student Loan ARCS. |
30. | UBS Securities was a large underwriter of APS until it ceased underwriting those shares in 2005 or 2006. |
31. | UBS Securities’ compensation for underwriting ARS was typically one percent of the amount underwritten. |
32. |
UBS Securities competed with other investment banks to provide low-cost financing to issuers. Its ability to do so was a key factor in its ability to generate additional underwriting business. |
Broker-dealer Agreements
33. | For the ARS that it underwrote, UBS Securities typically served as a manager of those auctions. |
34. | UBS Securities often served as lead manager, but sometimes served as co-manager of auctions with other large broker-dealers. |
35. |
UBS Securities’ management responsibilities were typically set forth in an agreement called a broker-dealer agreement that it entered into with the issuer. |
36. | UBS Securities’ compensation under those broker-dealer agreements was typically 20-25 basis points annualized of the amount managed. |
37. |
UBS Securities shared a portion of its management fee with UBS Financial Services and its Financial Advisors in connection with the sale of ARS to customers of UBS Financial Services. |
Distribution of ARS by UBS Financial Services
38. | UBS Financial Services served as the primary distribution model for the ARS that UBS Securities underwrote. |
39. | Most of the ARS that were sold to clients of UBS Financial Services came from UBS Securities’ ARS program. |
40. | UBS Financial Services did not do its own due diligence to discern whether particular ARS were quality instruments to be offered to its retail clients. |
41. |
The Director of Product Management testified that since joining UBS Financial Services in 2005, he could not recall any instance in which UBS Financial Services had rejected or declined to distribute to its customers an ARS product underwritten by UBS Securities. |
42. | FAs received a portion of 25 basis points annualized, calculated based on the total amount of ARS in which their clients were invested. |
43. |
Those FAs would have received no commission if they had put those same investors in a standard money market fund offered by the UBS Entities. |
UBS Securities Routinely Placed Support Bids in Order to Prevent Failed Auctions
44. | On all of the auctions for which it was the sole or lead broker-dealer, UBS Securities placed support bids to ensure that the auctions would not fail. |
45. |
According to information provided by the UBS Entities to the Task Force, in auctions for APS from January 1, 2006 through February 28, 2008, UBS Securities submitted support bids in 27,069 auctions. The support bids were drawn upon in order to prevent a failed auction 13,782 times, which represented 50.9 percent of those auctions. |
46. |
According to information provided by the UBS Entities to the Task Force, in auctions for Municipal ARCS and student-loan backed ARCS from January 1, 2006 through February 28, 2008, UBS Securities submitted support bids in 30,367 auctions. The support bids were drawn upon in order to prevent a failed auction 26,023 times, which represented 85.7 percent of those auctions. |
47. |
If UBS Securities had not placed support bids in auctions, the UBS Entities’ auction rate program would have failed. |
The UBS Entities' Setting of Interest Rates
Price Talk
48. |
Prior to every auction for which it was the sole or the lead broker-dealer, UBS Securities engaged in price talk. Price talk consisted of a range of bids that UBS Securities transmitted to UBS Financial Services’ FAs indicating where UBS Securities expected the auctions to clear. |
Setting Interest Rates by Placing Bids
49. | UBS Securities influenced interest rates directly by submitting buy and sell bids from its own inventory. |
50. | The Short Term Desk frequently set the rate at which the auction would clear. |
51. | In the Fall of 2007, UBS Securities raised the interest rates it set on ARS in part in response to a buildup of inventory of ARS (discussed below). |
52. |
In contrast to the understanding that retail investors were given that the interest rates on these securities were actually set through the auction process, the Head of Short-Term Trading put it as follows: “We are making pricing decisions based on our ability to attract investors while managing issuer client relationships and will continue to do so in efforts to move securities.” |
In August 2007, the UBS Entities Intentionally Allowed Certain of Their Auctions to Fail
53. |
In August 2007, a number of broker-dealers, including UBS Securities, failed some of their auctions for certain auction products that were issued in private placements relating to the CDO market and certain auction products issued by monoline insurance companies. |
54. | In August 2007, UBS Securities intentionally allowed the auctions for sixteen (16) CUSIPS to fail. |
55. | These same auctions continued to fail in the Fall of 2007. |
The UBS Entities' Inventory of ARS Increased Substantially
from August 2007 through mid-February 2008
Inventory Increased Beyond Cap Imposed by Risk Management
56. |
The UBS Entities’ inventory of ARS, which was added to each time the UBS Entities supported an auction that otherwise would have failed, began to increase after the auction failures in August 2007. |
57. | The UBS Entities’ risk-control division imposed limits on the amount of auction rate inventory that UBS Securities could hold. |
58. | When the inventory obtained by supporting auctions was reached, the Short-Term Desk had to request from risk-management an increase in that cap. |
59. | The UBS Entities’ support of the auctions caused their inventory of ARS to increase even more in 2008. |
Pushback from Risk Management
60. |
In the fall of 2007 and the beginning of 2008, the UBS Entities’ risk management group was beginning to express concerns about the increase in the buildup of ARS. Risk management expressed these concerns in the context of the short-term desk’s repeated requests to take on inventory of ARS above the caps imposed by risk management. |
61. |
For example, an email dated August 15, 2007, from an employee in the investment bank’s risk function (who worked with the investment bank’s Chief Risk Officer in the Americas), stated: “Limited extension [of permission to operate over peak auction rate security inventory limit] granted for one night. There is little tolerance for increased inventory firm wide; please continue to price aggressively to keep inventory down.” |
The UBS Entities Attempted to Limit the Buildup of Auction Rate Securities Inventory by
(a) Increasing Their Marketing Efforts to FAs and (b) Putting a Short-Term Fix On Certain Student Loan ARCS
Enhanced Marketing Efforts for ARS
62. | As the ARS inventory of UBS Securities began to grow, the Global Head of the Municipal Securities Group led an effort to sell more of that inventory. |
63. | This effort began in August 2007 and continued until the UBS Entities pulled out of the market in February 2008. |
64. | The UBS Entities’ primary distribution channel for ARS were UBS Financial Services FAs. |
65. |
A concerted marketing effort was made to get the FAs to sell ARS. |
66. |
In early 2008, in response to the substantial decrease in corporate cash demand for ARS, UBS Financial Services began an education campaign for the FAs to ensure that FAs understood the true credit quality of the ARS. |
Waivers of Maximum Rates on Student-Loan Backed Auction Rate Certificates
67. |
The maximum rate at which Student Loan ARCS could reset was too low to compensate investors for the perceived risk of those instruments during the period between August 2007 and February 2008. Many APS suffered from a similar flaw. |
68. |
These maximum rates were well known to UBS Securities since UBS Securities had built them into the instruments in order to make them more palatable to their underwriting clients. |
69. |
The maximum rates often allowed the issuers to obtain a higher rating on the product, in part because capping the interest rate on the product allowed them to satisfy the cash flow stress-tests of the rating agencies. |
70. |
As investors shied away from ARS after the August 2007 auction failures, the inventory of UBS Securities began to grow substantially, and it was necessary to keep raising interest rates in order to move the paper. |
71. |
However, as those interest rates began to approach the maximum rates on the securities with restrictive maximum rates, UBS Securities began an effort to get issuer clients to agree to a temporary increase in maximum rates and to seek waivers from the rating agencies in order to allow the interest rates on those instruments to rise to a level where those instruments could clear the market, until the market recovered or UBS Securities could work with issuers to restructure. |
72. | Those waivers were short-term in nature, and many that had been obtained in 2007 were set to expire in early 2008. |
73. |
UBS Securities became very concerned that when these waivers expired, these instruments would hit the maximum rate and the rate would reset to a level that would not be appealing to investors, thus requiring UBS Securities to take on even more Student Loan ARCS. |
74. | In January 2008, UBS Securities continued to seek waivers of the maximum rates from issuers. |
75. |
The UBS Entities did not disclose concerns with respect to maximum rates of Student Loan ARCS to investors. |
76. |
Moreover, FAs were not aware of these features and did not explain them to customers. |
After August 2007, the UBS Entities’ Concerns Regarding ARS Intensified, Causing the UBS Entities to Debate Their Ongoing Role In The Auction Markets
77. |
After August 2007, there was an ongoing dialogue within the firms’ organization as to the condition of the auction markets, with particular emphasis on Student Loan ARCS. |
78. |
In the Summer and Fall of 2007, the UBS Entities began a balance sheet reduction program, which required all divisions, including the short-term desk, to contribute to liquidity creation and balance sheet reduction. |
79. |
By early December 2007, it became clear that many institutional buyers were no longer interested in ARS. |
80. |
On December 12, 2007, the Head of Flow, Sales and Trading sent an email to the Global Head of Municipal Securities in which he stated: “The auction product does not work and we need to use our leverage to force the issuers to confront this problem our options are to resign as remarketing agent or fail or?” |
81. |
Of note, that same day (December 12, 2007), the Global Head of Municipal Securities sold his remaining personal shares of ARS while at the same time continuing to engage in enhanced marketing efforts to clients. He subsequently explained that he made these sales because “my risk tolerance from a credit perspective was - was something that drove me to want to sell” ARS. |
82. | A student loan task force was set up at the UBS Entities in mid-December 2007. |
83. |
In addition to the student loan task force, in December 2007, a working group was convened to discuss the broader condition of the UBS Entities’ ARS Program. According to the UBS Entities’ response to interrogatories propounded by the Task Force, “In late 2007, UBS formed a working group that addressed the general market conditions for ARS, as well as UBS’ continued role in ARS auctions.” |
84. | The working group held meetings on December 21, 2007, January 4, 2008, January 18, 2008, February 1, 2008 and February 29, 2008. |
85. |
The working group discussed, among other things, the buildup in inventory of ARS and strategies for exiting the auction markets. |
The UBS Entities’ Conflicted Role in Serving Underwriting Clients Versus Acting in the Best Interests of Retail Wealth Management Clients
86. |
The UBS Entities’ auction rate program, in which they actively managed to influence the interest rates on ARS (which interest rates, in theory, should have been set by auctions), put them in a fundamentally conflicted role. |
87. |
On one hand, as set forth in detail above, one or more of the UBS Entities often needed to raise interest rates in order for auction paper to clear. |
88. |
On the other hand, if interest rates were raised too high, one or more of the UBS Entities ran afoul of their underwriter clients, who had been promised low-cost financing. |
89. |
Many UBS Financial Services investors were unaware of this conflict, as it was never disclosed to them. |
90. |
Many retail purchasers of UBS Entity auction rate paper thought that the interest rates were set by the auction markets, not by the UBS Entities’ setting of the interest rates resulting from their balancing the needs of underwriting clients (which are the greatest source of revenue for these products) and the need to move the product so that its inventory did not grow too large. |
91. |
This conflict became more acute when the auction markets began to crumble. If UBS Securities did not raise rates enough, there would not be sufficient buying interest and UBS Securities would have to take more auction rate paper onto its books. If UBS Securities raised rates too high, the auction results could significantly increase the cost of financing to UBS Securities’ issuer clients. |
UBS Financial Advisors Were Not Apprised of this Back Story
92. |
As the auction rate market began to show some stress in August 2007, which then gained intensity through the end of 2007 and January 2008, many customers were not informed of any of the problems in the ARS market. | ||
93. |
Up through at least February 8, 2008, and in connection with updates to FAs of events occurring in the auction rate market, FAs were informed as follows:
|
94. |
This message came one day after the Global Head of Municipal Securities, in a February 7, 2008 email to certain UBS Entity personnel on whether the UBS Entities were contemplating failing auctions, described the auction rate securities market as “clock ticking-not sustainable.” |
95. |
In contrast to the sales of personal holdings of ARS by the Global Head of Municipal Securities in August and December 2007, customers who were kept in the dark about the UBS Entities’ concern about the viability of the program and the UBS Entities’ wavering commitment to the program, found themselves stuck. |
UBS Failed Its Auctions On February 13, 2008
96. |
UBS Financial Services’ FAs kept selling ARS through February 12, 2008. |
97. |
On February 13, 2008, without any notice to its customers who had purchased ARS, the UBS Entities failed their auctions for ARS. |
VI. CONCLUSIONS OF LAW
1. | The Commissioner has jurisdiction over this matter pursuant to the Act. |
2. |
The UBS Entities’ Failure to Supervise. As described in the Findings of Fact above, the UBS Entities’ failure to reasonably supervise their agents is a violation of Section 36b-31-6f (b) of the Regulations. |
3. |
The UBS Entities Engaged in Dishonest and Unethical Practices. As described in the Findings of Fact above, the UBS Entities, in connection with the offer, sale or purchase of ARS, directly or indirectly engaged in dishonest or unethical practices. As a result, the UBS Entities violated Sec 36b-4(b) of the Act. |
4. | The Commissioner finds the following relief appropriate and in the public interest. |
VII. CONSENT ORDER
On the basis of the Findings of Fact, Conclusions of Law, and the UBS Entities’ consent to the entry of this Consent Order,
IT IS HEREBY ORDERED THAT:
1. |
This Consent Order concludes the Investigation by the Commissioner, and, except as provided in Paragraphs VII.19 of this Consent Order, precludes any other action that the Commissioner could commence under the Act and the Regulations as it relates to the UBS Entities’ marketing and sale of ARS as described herein. The Commissioner’s August 5, 2009, Notice regarding “Opportunity To Show Compliance With Legal Requirements For Retention of Broker-Dealer Registrations” (“Notice”) is fully resolved by this Consent Order and the UBS Entities have no further obligations with respect to the Notice. | ||||||||||||||||||||||||||||||
2. |
This Consent Order is entered into solely for the purpose of resolving the above referenced multi-state investigation, and is not intended to be used for any other purpose. | ||||||||||||||||||||||||||||||
3. |
The UBS Entities shall refrain from violating the Act or any regulation or order under the Act, and shall comply with the Act, its regulations and any order under the Act. | ||||||||||||||||||||||||||||||
4. |
Within ten (10) days after the entry of this Consent Order by the Commissioner, the UBS Entities shall pay to the “Treasurer, State of Connecticut”, by electronic funds transfer or wire transfer, the total sum of Two Million Ninety Eight Thousand Seven Hundred Ninety Two and 26/100 Dollars ($2,098,792.26) as an administrative fine. | ||||||||||||||||||||||||||||||
5. |
UBS shall take, or be able to demonstrate that it has taken, certain measures (the “Eligible Customer Remedial Measures”) with respect to current and former customers as those measures relate to “Eligible ARS” as defined below. | ||||||||||||||||||||||||||||||
6. |
Eligible ARS. For purposes of this Consent Order, “Eligible ARS” means ARS that failed at least once in auctions between August 8, 2008 and October 7, 2008. | ||||||||||||||||||||||||||||||
7. |
Eligible Customers. As used in this Consent Order, an “Eligible Customer” is any current or former customer of one or both UBS Entities (not including (i) broker-dealers or (ii) banks acting as conduits for their customers) who opted in to the relief provided pursuant to this Consent Order and who meets any of the following criteria:
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8. |
Offer periods.
|
9. |
Customer Notification and Opt In Procedures.
|
10. |
Purchase Procedures.
|
11. |
Customer Priority. The UBS Entities agree that neither will take advantage of liquidity solutions for its own inventory without making them available, as soon as practicable, to its customers that opted in to the Eligible Customer Remedial Measures and who hold the same CUSIP(s) of ARS in their accounts. This obligation shall continue until June 30, 2010. |
12. | Relief for Customers Who Sold Below Par. The UBS Entities shall use their best efforts to identify any such Eligible Customers who sold Eligible ARS below par between February 13, 2008 and September 15, 2008. Through their execution of this Consent Order, the UBS Entities represent that, by October 31, 2008, they shall have paid any Eligible Customer so identified the difference between par and the price at which the customer sold the Eligible ARS, plus reasonable interest thereon. The UBS Entities shall promptly pay any such customer identified after October 31, 2008. |
13. | Refund of Refinancing Fees to Municipal Issuers. Through their execution of this Consent Order, the UBS Entities represent that, by June 30, 2009, they shall have refunded to municipal issuers those underwriting fees each issuer paid to the UBS Entities for the refinancing or conversion of ARS that occurred after February 13, 2008, where one or more of the UBS Entities acted as underwriter for both the primary offering of ARS between August 1, 2007 and February 12, 2008, and the refunding or conversion of the ARS after February 13, 2008. |
14. |
Negative Carry on Prior ARS Loan Programs. With respect to each customer who took out a loan from one or both of the UBS Entities (directly or indirectly) using the firm’s prior ARS loan programs since February 13, 2008, the UBS Entities shall promptly reimburse the customer for any excess interest costs associated with such loan when compared to the interest paid on average on the Eligible ARS that are the subject of the loan, plus reasonable interest thereon. |
15. |
Purchase from Certain Additional Customers.
|
16. |
Best Efforts. The UBS Entities represent, through their execution of this Consent Order, that, notwithstanding the UBS Entities’ obligations pursuant to Paragraph VII.8.c, the UBS Entities, no later than December 31, 2009, have used their best efforts to provide liquidity solutions at par for UBS Entity institutional customers (not including (i) broker-dealers or (ii) banks acting as conduits for their customers) by, among other things, facilitating issuer redemptions, and/or restructurings. |
17. |
Reports and Meetings.
|
18. |
Special Arbitration Process.
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19. | Ability to Take Additional Actions. The Commissioner will discontinue all investigations of the marketing and sale of Auction Rate Securities by the UBS Entities as described herein, and, except to the extent necessary to enforce compliance with this Consent Order, will withdraw and/or not commence any enforcement or other proceeding under the Act against the UBS Entities in connection with their marketing and sale of Auction Rate Securities as described herein. |
20. | Customer’s Rights Not Limited. Nothing in this Consent Order is intended to or shall be construed to limit existing rights of any customer and/or former customer of either or both UBS Entities to pursue claims such customer may have against either or both UBS Entities, including but not limited to any proceedings available to customers under FINRA rules and/or the FINRA Special Arbitration Process outlined in VII.18 above. |
21. | UBS AG. In consideration of the Commissioner entering into this settlement as reflected in this Consent Order, UBS AG will satisfy the financial obligations to customers herein on behalf of UBS Financial Services, Inc. and UBS Securities LLC. |
22. |
Subsequent Investor Relief. To the extent that either of the UBS Entities agrees to any subsequent settlement and/or Model Order with NASAA pertaining to their respective marketing and sale of Auction Rate Securities, which includes a term or terms analogous to the terms herein which are more favorable to investors than those terms identified herein, the subsequent term or terms shall be incorporated by reference into this agreement and become equally applicable to Connecticut investors. |
23. |
Additional Considerations
|
NOW THEREFORE, the Commissioner enters the following:
1. | The Findings of Fact, Conclusions of Law and Consent Order set forth above, be and are hereby entered; |
2. | Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against either or both of the UBS Entities based upon a violation of this Consent Order or the matters underlying its entry, if the Commissioner determines that compliance with the terms herein is not being observed or if any representations made by the UBS Entities and reflected herein are subsequently discovered to be untrue; and |
3. | This Consent Order shall become final when entered. |
So ordered at Hartford, Connecticut, | _______/s/_________ | |
this 26th day of May 2010. | Howard F. Pitkin | |
Banking Commissioner |
CONSENT TO ENTRY OF ORDER
We, James E. Odell and Alan J. Brudner, state on behalf of UBS Securities LLC, that we have read the foregoing Consent Order; that we know and fully understand its contents; that we are authorized to execute this Consent Order on behalf of UBS Securities LLC; that UBS Securities LLC agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that UBS Securities LLC voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein. UBS Securities LLC further agrees that it shall not claim, assert, or apply for a tax deduction or tax credit with regard to any state, federal or local tax for any administrative monetary penalty that UBS Securities LLC is obligated to pay pursuant to the foregoing Consent Order.
UBS Securities LLC | |
By | ______/s/__________________ |
James E. Odell | |
Managing Director |
_________/s/________________________
Notary Public
My Commission Expires: January 21, 2011
UBS Securities LLC | |
By | ______/s/__________________ |
Alan J. Brudner | |
Managing Director |
_________/s/________________________
Notary Public
My Commission Expires: 1-11-2014
CONSENT TO ENTRY OF ORDER
We, Thomas C. Naratil and Mark Shelton, state on behalf of UBS Financial Services Inc., that we have read the foregoing Consent Order; that we know and fully understand its contents; that we are authorized to execute this Consent Order on behalf of UBS Financial Services Inc.; that UBS Financial Services Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that UBS Financial Services Inc. voluntarily consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein. UBS Financial Services Inc. further agrees that it shall not claim, assert, or apply for a tax deduction or tax credit with regard to any state, federal or local tax for any administrative monetary penalty that UBS Financial Services Inc. is obligated to pay pursuant to the foregoing Consent Order.
UBS Financial Services Inc. | |
By | ______/s/__________________ |
Thomas C. Naratil | |
Managing Director |
_________/s/________________________
Notary Public
My Commission Expires: 2/17/2014
UBS Financial Services Inc. | |
By | ______/s/__________________ |
Mark Shelton | |
General Counsel and Managing Director |
_________/s/________________________
Notary Public
My Commission Expires: 2/17/2014