UBS Financial Services Hit Hard In Auction Rate Securities (ARS) Case

An arbitration panel in Baltimore, Maryland awarded $80,800,000.00 to the Claimant, Kajeet, Inc., for consequential damages incurred because of their inability to access their cash. In FINRA# 09-03990; Kajeet, Inc. v. UBS Financial Services, Inc., Kajeet contended that their inability to access the funds resulted in having to lay off half its work force in addition to losing a critical distribution deal with a large retail chain. Kajeet, Inc. had asked the arbitration panel to award them $110,000,000.00.

UBS had agreed to a settlement with the SEC and FINRA regarding the Auction Rate Securities (ARS), which they had represented as being safe investments like money market funds or cash. As a part of the settlement by UBS and other firms participating in similar settlements, a special arbitration procedure was established by FINRA. The Special Arbitration Procedure (SAP) allows investors who could not access their cash to file claims for the recovery of consequential damages arising caused by the frozen funds. Under the SAP, firms have limited defenses and cannot contest liability for claims based upon misrepresentations or omissions of their brokers. Furthermore, all filing fees, forum fees and other associated fees assessed by FINRA must be paid by the firm. Since discovery by the parties is very limited and timelines are shortened, hearings are expected within 180 days from the date the necessary papers are filed to initiate a SAP claim.

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