Securities fraud lawsuit for UBS

Swiss bank UBS is being sued by the New York attorney general for securities fraud in the United States.

Andrew Cuomo announced on Thursday that he had filed a civil lawsuit against the bank for misleading investors about the potential risks of the auction-rate securities – corporate or municipal bonds with variable interest rates.

The lawsuit contends UBS continued to sell the securities as safe although it knew they were potentially very risky.

The short-term investments, promoted as being as liquid as cash, have been nearly impossible to liquidate since brokers stopped supporting the market in January following the recent credit crises.

Cuomo accuses several senior UBS executives of wrongdoing, saying emails show how they got rid of personal holdings while still selling the securities to customers.

About 50,000 UBS clients were affected, of which 7,000 were from New York. Cuomo’s lawsuit calls for the bank to return about $25 billion (SFr25.9 billion).

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.

UBS said in a statement that it would “vigorously defend” itself against the charges.

“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,” it said.