WASHINGTON (CN) – UBS Securities will pay $22 billion to restore liquidity to customers of its auction rate securities business, in a settlement in principle, the SEC announced.
Of the enormous settlement, UBS Securities and UBS Financial Services will pay $8.2 billion to individual investors, small businesses and charities, $10.3 billion in institutional investors, and $3.3 billion to holders of tax-exempt Auction Preferred Shares, the SEC said.
The auction rate securities market collapsed in February, leaving more than 40,000 UBS customers holding untradeable paper. “The liquidity of these securities was premised on UBS providing support bids for auctions in managed when there was not enough customer demands, but this was not adequately disclosed to customers,” the SEC said. “When UBS stopped supporting auctions in February 2008, it led to widespread auction failures for UBS customers.”
Under the proposed settlement, UBS must buy back or liquidate the shares of individuals and charities owed less than $1 million by Oct. 31, do the same by Jan. 2, 2009 for those it owes $1 million to $10 million, and pay back institutional investors by June 30, 2010.