Mass Pike gets $4.3m "refund" from UBS in AG settlement of auction rate securities case

Massachusetts Turnpike Authority is getting $4.3m as part of a $37m settlement between international banker UBS and the state attorney-general Martha Coakley over auction-rate securitiies. Most of the money will go to about 20 towns and cities.

Coakley said that UBS had misled towns, cities and the Turnpike that although they had long maturities auction rate securities were liquid assets and that they were allowable short-term investments under the state's municipal finance law.

Early this year however the auction rate securities market collapsed and the local governments and the Turnpike were left with illiquid assets they can't cash in.

UBS has agreed to buy back the auction rate securities in Massachusetts at their face value. The company claims the settlement is specific to Massachusetts, hoping no doubt to stem demands for buy backs elsewhere.

Interest rate swaps under investigation

Interest rate swaps of the kind done by a number of toll authorities are the subject of a major federal probe. A number of major banks are reporting they are the target of federal complaints.

In Birmingham AL the mayor Larry Langford and some of his cronies have been charged by the SEC with receiving kickbacks for steering swap business to a favored firm.

Swaps were not previously regulated by the SEC but in this case the US is arguing they constitute a bond offering and are subject to the same rules.

Bond Buyer to reconsider their "Deal of the Year" awards?

A lot of the overhyped too-clever-by-a-mile financial gimmickry of the recent bubble years is popping and bursting - the auction rate securities, hedges, swaps and other "innovative finance" wizardry that got "Deal of the Year" awards from the likes of Bond Buyer. Many of these deals are now looking more like "Scam of the Year".

TOLLROADSnews 2008-05-09