NH Regulators Take on UBS Over Student Loan Securities

New Hampshire regulators are taking action against UBS Securities for fraud according to a statement by the New Hampshire Bureau of Securities Regulation (NHBSR). The charges relate to UBS’s representation of the New Hampshire Higher Education Loan Corporation (NHHELCO) and the sale of bonds used to finance New Hampshire college student loans. They charge UBS with engaging in dishonest and unethical business practices, claiming that it violated its required responsibilities when serving as NHHELCO’s underwriter, broker-dealer, and investment banker.

Mark Connoly, the director of the New Hampshire Bureau of Securities Regulation, said, “by this action today, New Hampshire is one of the first states to focus on the consequences of failed auction markets to other parties besides investors, specifically regarding students. It is crucial for us to address issues that could impact New Hampshire in a particularly severe way. Our goal with this action is to uncompromisingly enforce the securities laws to ensure that everyone is treated fairly in the wake of a failed process to bring these securities to market. We also believe that this action will go a long way in restoring fairness and liquidity to the market for auction rate securities across the country.

The auction rate securities that are at the center of the regulatory action being taken are essentially “bonds whose interest rates are reset at auction frequently,” according to the NH Bureau of Securities Regulation. The market for auction rate securities collapsed late last year meaning that
investors holding the securities could not sell them, and issuers of securities could not get financing.

The New Hampshire Higher Education Loan Corporation provided loans to almost 50,000 college students in the state last year. $66.5 million of NHHELCO securities were lost by the market collapse. Students are the hardest hit according to the NHBSR. The Bureau stated, “many students who rely on these loans are facing severe difficulties financing their education or must now seek more expensive or restrictive alternative loans. All of this comes at a particularly difficult time with the beginning of the academic year just around the corner for college students.”