UBS suspends U.S. fixed income head amid probes: report

Sat Jul 26, 2008 3:29pm EDT

CHICAGO (Reuters) - Swiss bank UBS AG has suspended David Shulman, head of its U.S. fixed income unit, amid state and federal probes of sales of auction-rate securities, the Wall Street Journal reported on Saturday, citing people familiar with the matter.

A spokesman for Shulman, who was also UBS's global head of municipal securities, said he was cooperating fully with UBS as it works through the matter, the newspaper reported.

On Thursday, New York State Attorney General Andrew Cuomo sued UBS, accusing it of committing a "multi-billion dollar fraud" by steering clients into auction-rate securities that became impossible to sell once the credit market tightened.

The long-term securities are issued by municipalities, student-loan companies and mutual funds, with interest rates set through weekly or monthly auctions.

The lawsuit said at least seven UBS executives dumped $21 million in auction-rate securities that they held in personal accounts as the credit market began showing signs of trouble, and that the bank continued to sell those securities.

UBS said it conducted an internal probe of alleged sales of personal holdings of auction-rate debt by its executives and found no wrongdoing.

"While UBS does not believe that there was illegal conduct by any employee, we have found cases of poor judgment by certain individuals and are evaluating appropriate disciplinary measures," the bank said last week.

Last week, UBS announced a plan to buy back as much as $3.5 billion in auction-rate securities from customers. Cuomo dismissed that offer as insufficient.

(Editing by John O'Callaghan)