More ‘Hedge Fund Hotel’ Flak For UBS

Massachusetts regulators accused Swiss banking giant UBS AG of improperly providing below-market office space, low-interest personal loans and other perks to Boston-based hedge-fund executives if they steered enough business to UBS.

The administrative complaint, part of a previously disclosed investigation, was filed by the Massachusetts Securities Division against UBS's U.S. brokerage arm. The complaint offers a look at some of the deals that brokers are providing hedge funds, the lightly regulated investment vehicles for the wealthy. Hedge funds are sought-after clients because they often trade rapidly and pay high commissions.

Massachusetts officials maintain the below-market rent and other perks are gifts, which must not exceed $100 in value under rules established by the National Association of Securities Dealers. The state alleges that UBS also violated a broad Massachusetts law prohibiting "dishonest and unethical" business practices.

According to the complaint, UBS provided the perks only if the hedge funds did a certain amount of business with the firm -- and would withdraw the inducements if they didn't -- an arrangement that regulators said amounted to an improper "quid pro quo."

The state is seeking to stop the alleged practices and an unspecified fine. A UBS spokeswoman declined to comment.

In January, Secretary of the Commonwealth William Galvin, who oversees the Massachusetts Securities Division, launched the investigation as part of a broader examination of what have come to be known as "hedge fund hotels." In such set-ups, big investment houses offer office space and other services to hedge funds.

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