A lawsuit has been filed and is seeking class action status against the financial firm and its brokerage unit for allegedly encouraging clients to place money in auction-rate notes instead of other short-term investments, without disclosing the risks. The lawsuit was filed in US District Court in Manhattan and claims UBS engaged in deceptive and manipulative marketing of auction-rate securities. Investors are financially strained with investments, deceptively marketed as cash equivalents, and are unable to meet immediate financial obligations.
Auction-rate notes are long-term bonds with interest rates reset periodically through an auction. Those auctions have not been meeting enough demand to reset interest rates recently, forcing some issuers to pay higher penalty rates, and investors to hold onto their securities.
