UBS Pays $300,000 in Fines to SEC to Settle Price Manipulation Charges
In yet another legal settlement between the Securities and Exchange Commission and UBS, the financial services giant agreed to pay $300,000 to settle charges that the company improperly valued several securities held by some of its mutual funds.
The allegations arose from actions taken by UBS in 2008 in order to bolster the value of three of its mutual funds at a time when the financial system was teetering on the brink of collapse. Specifically, the lawsuit concerned $22 million of unsecured mortgage-backed securities, assets that lost much of their value during the 2008 credit crisis.
Because many mortgage-backed securities trade in illiquid markets, there is not always an up-to-date price for a given asset. As such, UBS used estimated prices from outside organizations to value those securities. However, this violated both SEC rules and the internal policies of UBS, which states that such assets should be valued at the last market price.
Although the total amount of money involved was small relative to the size of the mutual funds, the size of the pricing discrepancies were quite large. In some instances, UBS valued its mortgage-backed securities at more than twice its fair value.
This practice was justified at a time when many financial analysts believed that markets were acting irrationally and that the prices of many exchangeable assets, including mortgage-backed securities, did not reflect their intrinsic values. The SEC alleged that this practice went on for approximately two weeks before it was corrected by UBS.
In a rather common practice in such cases, UBS did not accept responsibility for manipulating the net asset value of its mutual funds, but they did agree to pay the fine to recompense investors who were harmed by the practice. However, UBS did express its pleasure in having the case settled, and they said that they would place themselves under greater scrutiny in the future to ensure that such practices are not repeated.
This case is the latest in a series of legal woes suffered by UBS over the past year. In November, the company paid $8 million in fines to the SEC to settle a case involving accounting manipulation with respect to the short selling of certain assets; this was in addition to $12 million in fines paid in October to the Financial Industry Regulatory Authority to settle similar charges. As well, the company paid over $150 million last May to settle a case involving the price manipulation of municipal bonds.
Despite all of these legal problems, their total cost pales in comparison to the actions of the infamous rogue trader Kweku Adoboli, who cost UBS more than $2 billion last year through unauthorized trading with the firm's own money. All of this has served to severely damage the reputation of the prestigious Swiss financial company.
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