Hutchinson Technology, Inc., a firm with a dual focus on computer hardware technology and health care technology, recently filed suit against UBS AG, UBS Financial Services and UBS Securities LLC (“UBS”) for allegedly fraudulently inducing Hutchinson to purchase millions of dollars in auction rate securities (ARS). Hutchinson Technology Inc. v. UBS AG, et al., No. 08-CV-6038 (D. Minn.).
In its complaint, Hutchinson alleges that UBS fraudulently induced clients such as itself to purchase ARS in order to shed ARS from UBS’ own account. Additionally, the complaint alleges that UBS induced Hutchinson to maintain its investment in ARS despite knowing that the ARS market was about to deteriorate. In particular, the complaint alleges as follows:
- On February 11, 2008, Hutchinson’s Treasurer wrote to Hutchinson’s UBS Financial Adviser to inquire whether there was any problem with the securities, and was assured that “UBS was fully supporting all its auctions."
- On February 12, when Hutchinson’s Treasurer learned that additional auctions had failed, she notified UBS that Hutchinson wanted to liquidate its ARS, but was informed that its shares could not be liquidated until the next auction.
- The next day UBS stopped supporting the auctions and the market for ARS essentially collapsed.
The complaint also alleges that UBS violated Hutchinson’s Investment Policy by investing in types of ARS that were not specifically permitted (specifically those issued by student loan organizations).
Interestingly, the complaint specifically addresses UBS’ August 2008 settlement with regulators (the “Settlement”) and essentially argues that the Settlement is insufficient as it applies to Hutchinson because it unduly delays and fails to guarantee any relief Hutchinson might receive thereunder. The Complaint alleges that Hutchinson will not be able to take advantage of the Settlement’s buy back provisions until after mid-2010 and that any loan it can obtain from UBS under the Settlement can be collected by UBS at any time. The complaint further alleges that UBS may not exist by mid-2010 given the current uncertain economic conditions. It also states that Hutchinson may need to liquidate its ARS prior to June 2010 in order to pay certain obligations, and Hutchinson’s forced write-downs of its ARS holdings have and will continue to negatively impact its own stock price in the meantime.
The complaint contains causes of action for violations of §§ 10b-5 and 20(a) of the Exchange Act, violations of the Minnesota Securities Act, fraud, unsuitable investment recommendations contrary to FINRA rules, unauthorized trading and breach of contract, breach of fiduciary duty, negligence, consumer fraud, unlawful trade practices, deceptive trade practices and conversion.