SEC Division of Corporation Finance no-action letter: UBS AG

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
May 6, 2011
Mr. Kenneth J. Berman
Debevoise & Plimpton LLP
555 13th Street N.W.
Suite 1100E
Washington, D.C. 20004
Re: SEC v. UBS Financial Services Inc. (P-01118) UBS AG - Waiver Request oflneligible Issuer Status under Rule 405 ofthe Securities Act Dear Mr. Berman:
This is in response to your letter dated May 4,2011, written on behalf ofUBS AG (Company) and its subsidiary UBS Financial Services Inc. (UBSFS) and constituting an application for relief from the Company being considered an "ineligible issuer" under Rule 405(l)(vi) ofthe Securities Act of 1933 (Securities Act). On May 4,2011, the Commission filed a civil injunctive complaint (Complaint), in the United States District Court for the District ofNew Jersey, against UBSFS. The complaint alleges that UBSFS violated Section l5(c) ofthe Exchange Act of 1934 (Exchange Act). UBSFS filed a consent in which it agreed, without admitting or denying the allegations of the Complaint, to the entry of a Final Judgment against it. Among other things, the Final Judgment as entered on May 6,2011, provides for a permanent injunction from committing future violations of Section l5(c) ofthe Exchange Act. Based on the facts and representations in your letter, and assuming the Company and UBSFS comply with the Final Judgment, the Commission, pursuant to delegated authority has determined that the Company has made a showing of good cause under Rule 405(2) and that the Company will not be considered an ineligible issuer by reason ofthe entry ofthe Final Judgment. Accordingly, the relief described above from the Company being an ineligible issuer under Rule 405 ofthe Securities Act is hereby granted and the effectiveness ofsuch relief is as ofthe date of the entry ofthe Final Judgment. Any different facts from those represented or non-compliance with the Final Judgment might require us to reach a different conclusion. Sincerely, m~~~ Chief, Office ofEnforcement Liaison Division ofCorporation Finance

DEBEVOISE & PLIMPTON LLP
May 4, 2011
VIA FIRST CLASS MAIL AND E-MAIL
Mary Kosterlitz, Esq.
Chief, Office ofEnforcement Liaison
Division ofCorporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-7553
555 13th Street, N.W
Washington, D.C. 20004
Tel 202 383 8000
Fax 2023838118 www.debevoise.com
Securities and Exchange Commission v. UBS Financial Services Inc.
Dear Ms. Kosterlitz:
We submit this letter on behalf ofUBS AG, a reporting company registered under
Section 12 ofthe Securities Exchange Act of 1934 (the "Exchange Act") and indirect
parent company ofUBS Financial Services Inc., the settling defendant in the above￾captioned civil proceeding, which was filed on May 4,2011 (the "Settling Firm"). We hereby request a determination by the Division ofCorporation Finance, acting pursuant to authority duly delegated by the Securities and Exchange Commission (the "Commission"), that UBS AG should not be an "ineligible issuer" as defined under Rule 405 promulgated under the Securities Act of 1933 (the "Securities Act") as a result ofthe entry of a Judgment as to Defendant UBS Financial Services Inc. (the "Judgment"), which is described below. Relief from the ineligible issuer provisions is appropriate in the circumstances ofthis case for the reasons set forth below. It is also our understanding that the Staff ofthe Division ofEnforcement (the "Staff') does not oppose the requested waiver. UBS AG requests that this determination be made effective upon the entry ofthe Judgment. BACKGROUND The staff ofthe Division ofEnforcement has engaged in settlement discussions with the Settling Firm in connection with the above-captioned civil proceeding, which New York • Washington, D.C. • London • Paris • Frankfurt • Moscow • Hong Kong • Shanghai

Mary Kosterlitz, Esq. May 4,2011 will be brought alleging violations of Section 15(c) ofthe Exchange Act. As a result of these discussions, the Settling Firm submitted an executed Consent ofthe Defendant UBS Financial Services Inc. (the "Consent"). In the Consent, solely for the purpose of proceedings brought by or on behalf ofthe Commission or in which the Commission is a party, the Settling Firm consented to the entry of a final judgment as described below, without admitting or denying allegations made in the above-captioned proceeding. The allegations in the proceeding relate to the conduct of certain former employees ofthe Settling Firm with respect to the temporary investment of proceeds of municipal securities in reinvestment products such as guaranteed investment contracts, repurchase agreements, and forward purchase agreements. Beginning in 2000 and continuing through 2004, the former employees are alleged to have participated in conduct in connection with the competitive bidding for these products that involved the steering of business to the Settling Firm and the submission of purposefully non-winning bids in the Settling Firm's capacity as a reinvestment provider, and the steering of business to other firms in the Settling Firm's capacity as a bidding agent. These practices are alleged to have affected the prices for certain ofthe reinvestment products at issue and the certifications required under applicable Treasury regulations. The Judgment, among other things, will restrain and enjoin the Settling Firm and its agents, servants, employees, attorneys and all persons in active concert or participation with them who receive actual notice ofthe Judgment from violating, directly or indirectly, Section 15(c) ofthe Exchange Act. Additionally, pursuant to the Judgment, the Settling Firm will pay disgorgement and prejudgment interest of$14,707,180.00 to the Commission as well as a civil penalty of $32,500,000.00. UBS AG is not a party to the proceedings. DISCUSSION Effective on December 1, 2005, the Commission reformed and revised the registration, communications, and offering procedures under the Securities Act. l As part ofthese reforms, the Commission created a new category ofissuer defined under Rule 405 as a well-known seasoned issuer ("WKSI"). A WKSI is eligible under the new rules, among other things, to register securities for offer and sale under an "automatic shelf registration statement," as so defined. A WKSI is also eligible for the benefits of a streamlined registration process including the use offree-writing prospectuses in registered offerings pursuant to Rules 164 and 433 under the Securities Act. These Securities Offering Reform, Securities Act Release No. 8591, Exchange Act Release No. 52,056, Investment Company Act Release No. 26,993, 70 Fed. Reg. 44,722, 44,790 (Aug. 3,2005). 2

Mary Kosterlitz, Esq. May 4,2011 benefits, however, are unavailable to issuers defined as "ineligible issuers"z under Rule 405. Rule 405 defines "ineligible issuer," in pertinent part, as any issuer which itself or any ofits subsidiaries had within the past three years been "made the subject of any judicial or administrative decree or order arising out of a government action that ... [p]rohibits certain conduct or activities regarding, including future violations of, the anti￾fraud provisions ofthe federal securities laws." Notwithstanding the foregoing, paragraph (2) ofthe definition provides that an issuer "shall not be an ineligible issuer if the Commission determines, upon a showing of good cause, that it is not necessary under the circumstances that the issuer be considered an ineligible issuer." The Commission has delegated authority to the Division ofCorporation Finance to make such a determination pursuant to 17 CFR § 200.30-1(a)(l0). The Judgment might be deemed to render UBS AG an ineligible issuer for a period ofthree years after the Judgment is entered? This result would preclude UBS AG from qualifying as a WKSI and having the benefits of automatic shelfregistration and other provisions ofthe Securities Offering Reform for three years. This would impose a significant burden on UBS AG. UBS AG is a frequent issuer ofregistered securities that offers and sells securities under a shelfregistration statement in both one-off and ongoing debt and equity transactions. For UBS AG, the shelfregistration process provides an important means of access to the U.S. capital markets, which are an essential source of funding for the company's global operations. Consequently, the ability to avail itself of automatic shelfregistration and the other benefits available to a WKSI is very important toUBSAG. As set forth above, Rule 405 authorizes the Commission to determine for good cause that an issuer shall not be an ineligible issuer, notwithstanding that the issuer or a subsidiary ofthe issuer becomes subject to an otherwise disqualifying judicial order. UBS AG believes that there is good cause for the Commission to make such a determination here on the following grounds:

1. The conduct addressed in the Judgment does not pertain to activities
   undertaken by UBS AG, its affiliates, or its subsidiaries in connection with UBS AG's role as an issuer ofsecurities (or any disclosure related thereto) or any ofits filings with 2 This request for reliefis not intended to be limited solely for the purpose of continuing to qualifY as a WKSI, but for all purposes ofthe definition of "ineligible issuer" under Rule 405 including but not limited to whatever purpose the defmition may now or hereafter be used under the federal securities laws, including Commission rules and regulations. The Settling Firm is a wholly owned subsidiary ofUBS Americas Inc. which, in turn, is a wholly owned subsidiary ofUBS AG. In addition, UBS AG and UBS Americas Inc. collectively own all of the membership interests ofthe Settling Firm. 3

Mary Kosterlitz, Esq. May 4,2011 the Commission. The alleged conduct related to the Settling Firm's activities as a reinvestment provider and a bidding agent with respect to municipal derivatives. Furthermore, we note that the conduct occurred over five years ago, the personnel at the Settling Firm who were involved in the violations alleged in the Complaint are no longer employed by the Settling Firm, and the business unit in which the former employees were employed was closed by the Settling Firm in June 2008.
2. UBS AG and its affiliates have strong records of compliance with the
securities laws and fully cooperated with the Enforcement Division's inquiry into this matter. In addition, pursuant to the Judgment, the Settling Firm will be subject to injunctive relief and will be required to make disgorgement payments.
3. Designation ofUBS AG as an ineligible issuer would be unduly and
disproportionately severe, given that the Judgment fully addresses the activity alleged in the Complaint through injunctive and other relief. Loss of, or the possibility of preclusion from, WKSI privileges, and other adverse consequences thereof, would impose an additional penalty beyond what the Judgment requires and is not necessary to achieve its remedial purposes. In light ofthe foregoing, subjecting UBS AG to ineligible issuer status is not necessary under the circumstances, either in the public interest or for the protection of investors, and good cause exists for the grant ofthe requested relief. Accordingly, we respectfully request that the Division of Corporation Finance, acting pursuant to authority duly delegated by the Commission and pursuant to paragraph (2) ofthe definition of "ineligible issuer" in Rule 405, determines that under the circumstances UBS AG will not be considered an "ineligible issuer" within the meaning ofRule 405 as a result ofthe Judgment.4 We further request that this determination be made (i) effective upon entry of the Judgment and (ii) for all purposes ofthe definition of "ineligible issuer," however it may now or hereafter be used under the federal securities laws and the rules thereunder. 4 We note in support ofthis request that the Division ofCorporation Finance, acting pursuant to authority duly delegated by the Commission, has in other instances granted relief under Rule 405 for similar reasons. See, e.g., Waiver Requests ofIneligible Issuer Status under Rule 405 ofthe Securities Act were granted for: Deutsche Bank Securities, Inc. (Jun. 16,2009); Royal Bank of Canada (Jun. 11,2009); VBS Financial Services Inc. (December 23,2008); Bank of America (May 1, 2008); Morgan Stanley (May 11,2007); Banc ofAmerica Securities LLC (March 14,2007); Bank of New York (January 9, 2007); and Deutsche Bank, AG (January 9, 2007). 4

Mary Kosterlitz, Esq. May 4,2011
If you have any questions regarding this request, please contact me at (202) 383- 8050. Sincerely yours, t:t6- 5