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Friday, 11 September 2009

Buy? I nearly threw up

Having wriggled through the US legal system on charges of aiding and abetting tax evasion, losing several hundred million dollars in the process, UBS have been back in the courts in a civil case brought in Connecticutt by Pursuit Partners, a hedge fund that claims UBS salesman dumped the certain CDOs on the fund without revealing that it had had discussed a potential downgrade of the securities with Moody's following a change of methodology by the rating agency.

Now is not the time or place to go into matters that have yet to be decided, although the judge has told UBS to set aside over $35 million to cover the cost of any potential judgement. That amount was the value of certain CDOs sold top Pursuit who had previously told UBS that they only wanted to buy investment grade paper.

The true quality of the paper was described after the sale by the salesman who sent an email saying "he had sold more crap to Pursuit", according to a pre-judgement report. Worse still, the report continues as follows:

The court finds that the problem was not confined to only the CDOs at issue in this PJR. For instance, on September 24, 2007, as the clock was running out on the investment grade ratings for its products, another UBS employee sent an email to a UBS director referencing another supposed “investment grade” rated CDO in their inventory, writing, “OK still have this vomit?”

Which tells you all you need to know about the ethics at UBS. It also speaks volumes about the quality of research and insight at some small hedge funds.

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