Emily LaGrassa
Amie Breton
(617) 727-2543

MARTHA COAKLEY

ATTORNEY GENERAL

              “We appreciate that UBS has taken action to return the invested monies to our cities, towns and other government entities.  In these tight financial times, Massachusetts municipalities need to have access to their monies and to invest them appropriately.”  The Attorney General noted that her review of potential penalties under the False Claims Act, and her review of certain municipal trust fund accounts, is ongoing.

              An auction rate security is a debt instrument, such as a bond, or preferred stock for which the interest rate or dividend is periodically reset through an auction mechanism.  In some instances, towns and cities were persuaded to invest their cash accounts into these auction rate security accounts.  Although these securities have long-term maturities of many years, they historically have been offered for sale at weekly or monthly auctions.  However, in early 2008, the market for auction rate securities dried up and the auctions through which they were sold experienced widespread failures.  When an auction fails, liquidity disappears from the market as it becomes difficult to dispose of such securities at all, let alone at par value.  Many such securities have been written down to reflect their reduced market value.  Auction rate security investments have been frozen since early this year due to lack of market liquidity, and the value of many of the municipal investments have been written down by UBS. 

              Since the auction failures, the Massachusetts cities, towns and other government entities who have invested in auction rate securities have been forced to hold these securities in order to avoid principal losses.  UBS’s action today will allow these entities to recover these frozen funds.

              Affected Massachusetts entities include: Town of Andover, Town of Merrimac, Town of Needham, City of Holyoke, Town of Whitman, Town of Hudson, Town of Westborough, City of Chicopee, Town of Barnstable, Town of East Longmeadow, Massachusetts Turnpike Authority, Town of Wayland, Town of Boylston, Town of Warren, Town of Winchester, Town of Mattapoisett, Town of Dedham, and Town of Belchertown.

              This matter was handled by Assistant Attorneys Generals Owen Lefkon, Michael Shin, Amy Markowitz and Division Chief Glenn Kaplan of Attorney General Coakley’s Insurance and Financial Services Division, with assistance from Legal Analyst Pallavi Chintapalli.

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