In the past four years, there has been a significant spike in the amount of shareholder lawsuits. Investors have grown increasingly leery of firms as they worry they have been misled as the firms they own are mismanaged. In the past week alone, the Charlotte based Bank of America (NYSE: BAC) has agreed to settle with investors over the Merrill Lynch acquisition, while UBS (NYSE: UBS) has faced similar scrutiny due to representations they have made. While Bank of America has settled, UBS has not, and in fact won an important dismissal.
The lawsuit, filed in 2007, spilled out of UBS’s subprime mortgage losses during the height of the financial crisis. UBS wrote down $48.6 billion in assets between 2007 and 2009 due to its investments in mortgage-backed securities that went sour, according to the complaint. The lawsuit accused UBS of violating U.S. securities laws by issuing fraudulent statements related to its mortgage-related and auction rate securities portfolios. The plaintiffs also claimed UBS misled investors by engaging in a scheme in which its Swiss bankers helped U.S. clients engage in tax evasion. UBS ultimately in 2009 agreed to a $780 million settlement with the U.S. government to settle its criminal probe.
UBS AG won the dismissal Friday of the shareholder lawsuit accusing the Swiss-based bank of misrepresenting its exposure to mortgage-backed securities and its compliance with U.S. tax laws. U.S. District Judge Richard Sullivan in Manhattan issued the ruling. The case is dismissed with prejudice, meaning the plaintiffs cannot replead their case at the district court level. “Although UBS made a series of bad bets with disastrous consequences for the company and its shareholders, those consequences alone are insufficient to establish and support a claim for securities fraud,” Sullivan wrote. Karina Byrne, a UBS spokeswoman, said the bank “is pleased with Judge Sullivan’s well-reasoned decision dismissing the complaint with prejudice.” Justice Sullivan said the plaintiffs had failed to put forward a case that UBS had acted with intent to defraud investors. The judge separately said the investors had failed to allege that any mistatements or omissions related to its private banking business were material.
While it is a victory for UBS, it is a hollow one at that – investors remain skeptical about the firm, and feel misled by its actions. Although the firm may have been able to avoid a multi billion dollar settlement similar to what Bank of America has endured, they are not yet endeared to the investing public, and the stock very well may continue to suffer.
