Corporate & Securities Law

Plug Power Sues UBS As Auction-Rate Securities Woes, Failed Auctions And Big Discounts On Redemptions Continue

By James Eccleston

Auction-rate securities continue to trouble investors.  According to Bloomberg data, failures in the auction-rate preferred share market, which are sold by mutual funds, and debt sold by student loan providers, continue to run at about a 99 percent failure rate for auctions.

In other news, the Missouri student loan agency, known as MOHELA, does plan to redeem securities for investors.  The problem is, however, at a steep discount - about 25 percent below their value.

Finally, Plug Power has filed an arbitration claim against UBS Financial Services for $62.8 million, claiming the brokerage firm improperly invested that sum in so-called auction-rate securities.  The auction-rate securities UBS bought for Plug were backed by federally insured student loans, and Plug said in the lawsuit that student loan-backed ARS are the hardest to sell, with discounts of 25 percent or more.  We certainly know that to be true.

"Throughout the fall of 2007, other brokers and investment advisers began advising clients to liquidate their ARS holdings, in light of the failed auctions and increased liquidity risks...UBS did not notify Plug Power of these risks."

Those with information concerning the preferential treatment of certain large clients to disadvantage others should contact SNSFE.

Sources:  Bloomberg; Times Union; Tribune

Full post as published by FinancialCounsel on May 22, 2008 (boomark / email).