Legal News

The ARS Party Continues: Lawsuit Against UBS Proceeds

By Amir Efrati

Not long ago we told you the auction-rate securities party might be drawing to a close for big financial institutions that were cashing out. We may have spoken too soon.

Despite settling a fraud lawsuit filed brought by New York Attorney General Andrew Cuomo by agreeing to buy back $19 billion of auction-rate securities from clients who got stuck with them, UBS continues to fend off litigation.

Today, a federal judge in Albany, N.Y., ruled that a fraud suit filed by a New York energy company that got stuck with more than $60 million of auction-rate securities could move forward, denying UBS’s motion to dismiss. The company, Plug Power Inc., said UBS lied to its CFO last year by saying the ARS were safe and liquid, despite spikes in their interest rates that suggested otherwise.

Here’s the WSJ story from Amir Efrati (that’s me), the amended complaint, and a transcript of today’s hearing.

The UBS settlement with regulators said securities held by institutional clients are expected to be bought back by 2010, but “we need the funds before 2010, and they’re not providing us a [guarantee] that they will be able to pay us in 2010,” says George Carpinello (pictured), a lawyer at Boies Schiller, which is representing the plaintiff.

The case is being widely watched by institutional investors holding billions of dollars worth of auction-rate securities they can’t easily sell. Unlike small businesses and individuals, larger institutional investors didn’t benefit from most of the agreements made by numerous financial institutions to buy back many of the securities they sold.

A UBS spokesman said in a statement: “We are disappointed that this case wasn’t dismissed today and we intend to vigorously defend ourselves in this action.”

Full post as published by Law Blog - WSJ.com on September 17, 2008 (boomark / email).