Auction rate arbitration against UBS may proceed: judge
By Nate Raymond
NEW YORK (Reuters) - UBS AG (UBSN.VX: Quote) (UBS.N: Quote) has lost a bid to block a securities arbitration by a Minnesota healthcare organization asserting claims arising out of $125 million in auction-rate securities it issued in 2007.
The ruling by U.S. District Judge Michael Davis in Minneapolis on Monday marked the latest decision in a series of disputes over who constitutes a "customer" for securities arbitration before the Financial Industry Regulatory Authority.
Davis found Allina Health System was a customer, despite the bank's arguments that auction-rate securities issuers are not customers of underwriters under the rules of FINRA, the financial industry's self-regulator that runs the arbitration forum to settle disputes between broker dealers and customers.
Auction-rate securities are a type of bond in which investors place bids that determine interest rates.
A spokeswoman for UBS did not respond to a request for comment.
Allina, a not-for-profit health-care system, commenced the arbitration in February 2012, in a case arising out of auction-rate securities it issued in October 2007 as part of an issuance of $475 million in bonds to refinance debt and to finance remodeling and renovations.
UBS was the underwriter of the auction-rate securities issued by Allina.
In February 2008, as the financial crisis gained steam, the auction-rate securities market collapsed as auctions failed. Allina contended the market collapsed due to a decision by UBS and other banks to stop submitting support bids to prevent auction failures. Continued...