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Hutchinson Technology sues over securities gone sour
Suit alleges Citigroup and UBS said risky investments were safe.
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Hutchinson Technology Inc., a maker of disk-drive components based in Hutchinson, has sued two Wall Street financial firms that the company says sold it more than $100 million in risky securities that were billed as safe.
The lawsuits, one against Swiss banking giant UBS and the other against New York-based Citigroup Inc., were filed Friday in U.S. District Court in Minneapolis.
The suits allege that UBS and Citigroup sold Hutchinson auction-rate securities (ARS) as safe investments even though they knew they were risky. One suit claims that "UBS sought secretly to shift the risk from its swelling inventory of ARS onto clients like Hutchinson by pitching ARS as safe." The other suit alleges that Citigroup promoted the securities as safe at a time when Citigroup was "purchasing large quantities of ARS to keep the market liquid."
Auction-rate securities were considered highly liquid investments, but the market for them collapsed in February as part of a downturn in the credit markets.
In August settlements with state regulators, UBS agreed to buy back $18.6 billion in auction-rate securities, and Citigroup agreed to buy back $7 billion -- deals that affected more than 80,000 investors nationwide. Both firms also paid fines, UBS $150 million and Citigroup $100 million.
The UBS suit says that in February, UBS stopped supporting the auction-rate market, making the $70 million in auction-rate securities sold to Hutchinson "illiquid" and preventing Hutchinson from gaining access to the money. In the same month, the other suit alleges, Citigroup left Hutchinson with $31 million "in investments it could not sell or convert to cash."
Both suits seek actual damages, and the UBS suit also seeks unspecified punitive damages. By seeking punitive damages, the suit against UBS -- which relies in part on the state regulators' investigations -- appears to go beyond the state settlements that involved only buybacks of securities and state fines.
Steve Alexander • 612-673-4553
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