Puffery by UBS Doesn’t Support Investor Suit

MANHATTAN (CN) - Because its "aspirational" statements about the sub-prime mortgage market did not mislead shareholders, UBS will not face securities charges, the 2nd Circuit ruled Tuesday.

"It is well-established that general statements about reputation, integrity and compliance with ethical norms and inactionable 'puffery,' meaning that they are 'too general to cause a reasonable investor to rely on them," Judge Jose Cabranes wrote for a three-judge panel. "In sum, plaintiffs have not pleaded any misstatements in the offering that give rise to a cause of action under the Securities Act."

The ruling affirms the dismissal of the case by U.S. District Judge Richard Sullivan for failure to adequately plead the elements of fraud.

"This is particularly true where, as here, the statements are explicitly aspirational, with qualifiers such as 'aims to,' 'wants to,' and 'should,'" Cabranes wrote. "Plaintiffs' claim that these statements were knowingly and verifiably false when made does not cure their generality, which is what prevents them from rising to the level of materiality required to form the basis for assessing a potential investment."

A spokesman for UBS did not immediately return a request for comment Wednesday.

The $100 billion portfolio began with the 2006 launch of Dillon Read Capital Management, an internal hedge fund held by UBS CEO John Costas.

Despite subsequent larger-scale acquisitions, write-downs on Dillon Read's subprime portfolio led UBS to close and reintegrate its $20 billion portfolio into its Investment Bank.

Investors said UBS concealed the scope of the subprime portfolio by disclosing $23 billion rather than $100 billion, and then concealed losses in that portfolio as the subprime market began to fall in February 2007.

UBS revealed in February 2009 that it created tax fraud when it participated in a scheme wherein UBS Swiss bankers traveled to and from the U.S. to illegally advise American clients on the purchase of investments. The company paid a $780 million fine.

A group of American and foreign investors had sued UBS after buying UBS "ordinary shares" between Aug. 13, 2003, and Feb. 23, 2009, that were listed on both foreign stock exchanges and the New York Stock Exchange.

They claimed that UBS made "fraudulent" statements regarding its mortgage-related assets portfolio, and lied that its Swiss-based global cross-border "private banking businesses" complied with U.S. tax laws.

They also claimed that UBS overvalued $100 billion in residential mortgage-backed securities and collaterized debt obligations between Feb. 13, 2006, and April 21, 2008, without disclosing to shareholders regarding its risk-management policies.

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