Ex-UBS broker files whistle-blower complaint

Timothy Flynn's complaint alleges top UBS officials knew last winter that auction-rate securities could be on the verge of failing, but continued to press brokers to portray them to customers as safe--advice that proved costly when the more than $300 billion market for such investments collapsed in February.

The complaint says UBS "failed and refused to disclose to its employees and clients that auction-rate securities were not truly liquid despite UBS' misleadingly marketing them as such."

Switzerland-based UBS denies the allegations in Flynn's June 11 complaint, which was reported Thursday by The Boston Globe.

The administrative complaint was filed in New York with the Occupational Safety and Health Administration. The federal agency has 180 days to review the complaint and decide on any penalties. If no action is taken, Flynn could choose to sue in court.

Flynn, hired as a New York City-based UBS employee two years ago, spent much of his time marketing securities in Massachusetts, often to small-town treasurers.

His complaint alleges he was forced out of UBS after meeting in April with Attorney General Martha Coakley's investigators, who were reviewing the $30 million in auction-rate securities that Flynn sold to towns and cities statewide. Massachusetts officials say state law bars municipalities from making such risky investments.

Flynn said he told investigators that UBS had led its brokers to believe the investments were safe and similar to money market accounts, because customers normally could get out of them every seven or 28 days at regular auctions as interest rates reset.

But starting in mid-February, the auctions failed to yield buyers, as investors sought to avoid risk amid turmoil in credit markets. The market's failure left many investors including local governments with their cash frozen.

UBS settled with Coakley in May by agreeing to buy back $37 million in securities sold by Flynn and other UBS brokers to Massachusetts towns and cities, as well as the Massachusetts Turnpike Authority.

After the settlement, Flynn alleges UBS locked him out of his office, removed the hard drive from his office computer and suspended him. Later, he was forced to resign or face being fired, he said.

"He filed a complaint to enforce his rights, and to try to mitigate harm to his reputation and career," said Jason Archinaco, Flynn's attorney, who said his client had since found a new job. He wouldn't say where Flynn works now.

UBS spokesman Kris Kagel said the firm took no improper actions against Flynn.

"Mr. Flynn made the decision to resign of his own volition," Kagel said. "UBS therefore denies the allegations in his claim and plans to defend itself vigorously."

Although Coakley's office settled with UBS, the Massachusetts Securities Division last week filed civil fraud charges alleging UBS misrepresented the risks of auction-rate securities to customers and failed to disclose its conflicts in selling them.

UBS said it would defend itself against the allegations.