BOSTON – The office of Secretary of the Commonwealth William F. Galvin has accused UBS Securities LLC, the investment-banking division of Zurich-based UBS AG, of offering “unethical” incentives to hedge-fund advisers.
In an administrative complaint filed yesterday, the Mass. Securities Division’s Enforcement Section accuses UBS of “violating the Mass. Uniform Securities Act … and relevant regulations,” including federal securities laws.
The document alleges that UBS “has been providing gifts and gratuities to the advisers for certain hedge funds, including below-market rent, personal loans with below-market interest rates, and tickets to sporting events and other entertainment events … in order to induce those advisors to increase or retain lucrative prime brokerage fees resulting from those hedge funds.”
Managers of one Boston hedge fund allegedly received $5 million in personal loans last year, exceeding company lending limits, Bloomberg News notes. “I would not like us to make a habit of this and that should be communicated,” investment-banking head Huw Jenkins in London allegedly wrote in an e-mail approving the loans that is included as an exhibit in the filing.
The regulators’ 46-page complaint seeks a cease-and-desist order against UBS, as well as censure; an unspecified fine, in “an amount and on such terms as the director or hearing officer may determine”; and “such further action as may be deemed just and appropriate … for the protection of investors.”
A UBS spokesman in New York declined to comment, Bloomberg said, while e-mails and calls to executives of the three hedge-fund firms drew no response.
Galvin had said in January that he was investigating relationships between investment banks and hedge-fund clients, but had declined to give specifics, Bloomberg said. His spokesman Brian McNiff declined to comment on those probes yesterday, except to say: “At this point, this is the only case we’ve brought.”
“Massachusetts is going to argue that this is a subtle form of securities fraud, if people are getting steered into investments with undisclosed conflicts of interest,” Seth Berenzweig, a lawyer with Arlington, Va.-based Albo & Oblon, told Bloomberg News. “It’s one thing to provide institutional help at the company level and another thing to provide what regulators might see as a personal bribe,” he said.
The complaint against UBS filed by the Office of the Secretary of the Commonwealth, and the associated exhibits, can be viewed at www.sec.state.ma.us.
