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UBS Allegedly Mislead CDO Investors, Ordered to Pay $50 Million by SEC

Investment fraud lawyers are currently investigating claims regarding UBS Securities. UBS Securities has agreed to pay almost $50 million to settle charges that it violated securities laws regarding certain collateralized debt obligation, or “CDO”, investments. The charges apply to the firm’s structuring and marketing of ACA ABS 2007-2 — a CDO, or collateralized debt obligation. Allegedly, UBS failed to disclose the fact that it retained millions in upfront cash while acquiring collateral. The SEC officially charged UBS on August 6, 2013.


The collateral for the CDO was managed by ACA Management and reportedly was primarily consisted of CDS on subprime RMBS, or residential mortgage-backed securities. According to securities arbitration lawyers, the CDO — as the “insurer” — received premiums from the CDS collateral on a monthly basis. Then the premiums were used for CDO bondholder payments. According to the SEC, ACA and UBS agreed that the collateral manager would seek bids for yield that contained both a fixed running spread and upfront cash in the form of “points.”

According to the SEC’s findings, UBS collected upfront payments totaling $23.6 million while acquiring collateral and, instead of transferring the upfront fees at the same time as the collateral, UBS kept the upfront payments and chose not to disclose this information. In addition to retaining the undisclosed $23.6 million, it also retained a disclosed fee of $10.8 million. Investment fraud lawyers say the decision not to disclose the retention of the upfront points was inconsistent with prior UBS deals and the industry standard. Allegedly, UBS’ head of the U.S. CDO group stated, “Let’s see how much money we can draw out of the deal.”

“UBS kept $23.6 million that under the terms of the deal should have gone to the CDO for the benefit of its investors,” says George S. Canellos, co-director of the SEC’s Division of Enforcement. “In doing so, UBS misrepresented the nature of the CDO’s collateral and rendered false the disclosures about how the collateral was acquired.”

The $50 million settlement includes disgorgement of the upfront payments amounting to $23.6 million and the $10.8 million disclosed fee, $9.7 million in interest and a $5.7 million penalty. If you invested in the CDO ACA ABS 2007-2, find out more about your legal rights and options by contacting a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a no-cost, confidential consultation.

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