UBS AG Case 9/17/2008

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Company Name(s): 
UBS AG
Case Name: 
UBS AG Case 9/17/2008
Case Status: 
Lawsuit Filed
Affected Securities
NYSE: UBS
Lawsuit Overview
Type of Lawsuit: 
Shareholder Class Action
Date Filed: 
09/17/2008
Class Period Begin: 
05/13/2008
Class Period End: 
09/06/2008
Summary: 

According to a law firm press release, a class action complaint was filed against against the underwriters of Fannie Mae’s May 13, 2008 offering of 8.25% Non-Cumulative Preferred Stock, Series T. Included in the named defendants are Merrill Lynch, Citigroup, Morgan Stanley, UBS Securities and Wachovia Capital Markets, along with four senior executives of Fannie Mae. This is the second lawsuit filed in relation to the collapse of the government-sponsored mortgage giant.
The Offering involved the sale of approximately 80 million shares of non-cumulative, non-convertible, perpetual fixed-rate preferred stock, at an offering price of $25 per share. It was part of Fannie Mae’s effort to raise at least $6 billion in new capital through public offerings of new securities during May, 2008. The new capital was to help shore up the Company’s balance sheet so that capital requirements could continue to be satisfied, enhance shareholder value and provide stability to the secondary mortgage market. Fannie Mae’s senior officers, defendants here, repeatedly assured the marketplace that this round of capital-raising would put the company on a sound financial footing and that they believed that additional infusions of cash would not be necessary for the foreseeable future.
The five Underwriter Defendants were the managing underwriters for the Offering. As such, they participated in the review and drafting of the Offering Circular, which was the official sales document for the Offering, solicited sales of the shares, and identified themselves, on the cover of the Offering Circular, as the underwriters for the Offering. The Underwriter Defendants purchased 14 million shares each of the Offering, delivered the Offering Circular to prospective investors, and resold those shares to investors in the Offering.
The complaint alleges that the Underwriter Defendants’ statements made in connection with the Offering were materially false and misleading because (a) they grossly overstated Fannie Mae’s capitalization, claiming that the Company had a substantial capital surplus when, in fact, it was including on its balance sheet, at full value, about $36 billion in deferred tax assets that were, in fact, valueless; (b) they failed to disclose the serious risk that current account changes under consideration by the FASB could force the Company to bring over $2 trillion of currently off-balance-sheet obligations onto its financial statements, depleting its capital surplus even further; and (c) the individual defendants falsely asserted that management believed that the current securities offerings of the company would be adequate to see the Company through the end of the year.