In his (2008) article for CNNMoney.com, "UBS hit with New York auction-rate security suit," David Ellis describes the auction-rate security scandal involving the Swiss banking giant UBS. Ellis (2008) describes how UBS sold auction-rate securities to investors under false pretenses, assuring them that the securities would be liquid, and then-when investors tried to sell them-telling them that the investments were "long-term" investments instead. The article explains how New York State Attorney General Cuomo is bringing a nationwide lawsuit against UBS to recover the money, which totals billions of dollars, saying that he was "sending a resounding message to the rest of the industry that this type of deceptive behavior will not be tolerated" (Ellis, 2008). In addition, UBS' top executives found out about the problems in the auction-rate securities market and sold off approximately $21 billion of their own holdings to save themselves from the problems that were plaguing investors (Ellis, 2008). Cuomo responded to this action, stating, "You can't have two sets of rules-one set of rules for customers and one for senior officials" (Ellis, 2008).
The ethical problems in this scenario include not only deceptive business practices but also a double standard. UBS pretended to investors that it would be there to buy back the auction-rate securities if they wanted to sell, but then backed out and left investors holding the bag, yet its executives made sure they could sell their own personal holdings. Auction-rate securities are generally considered "liquid cash" by investors, but "When the auctions began failing in mid-February, investors had no way to sell" (Pressman, 2008). If this were not enough, "a new round of charges of unfair practices, inadequate disclosure, and securities law violations is emerging" (Pressman, 2008). Some small investors are complaining that the issuers' refinancing of a portion of their auction...