From the NYT Blog Dealbook:

Massachusetts Attorney General Martha Coakley’s office reached a $37 million agreement with UBS Wednesday, requiring the bank to return funds to the Massachusetts Turnpike Authority and 17 municipalities that it allegedly misled into buying auction-rate securities.

Auction-rate securities are a kind of debt that allowed nonprofits to borrow money at low rates. But these securities relied on weekly or monthly auctions, where investors re-upped their holdings, and those auctions broadly failed in February, leaving investors stuck with illiquid investments they had expected to work like cash.

Ms. Coakley said cities and towns were, in some instances, persuaded by UBS to invest their cash accounts in these auction-rate securities. And with the market’s collapse, those municipalities have had portions of their cash locked up since February.

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