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C.D.T.S. No. 1 and A.T.U. Local 1321 Pension Plan, Et Al. V. UBS AG, Et Al

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C.D.T.S. No. 1 and A.T.U. Local 1321 Pension Plan, Et Al. V. UBS AG, Et Al Case 1:12-cv-04924-KBF Document 46 Filed 03/04/13 Page 1 of 138 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x C.D.T.S. NO. 1 AND A.T.U. LOCAL 1321 : Civil Action No. 1:12-cv-04924-KBF-HBP PENSION PLAN, Individually and on Behalf of All Others Similarly Situated, : CLASS ACTION : Plaintiff, : FIRST AMENDED CONSOLIDATED : COMPLAINT FOR VIOLATIONS OF THE vs. : FEDERAL SECURITIES LAWS : UBS AG, et al., : Defendants. : x 819129_1 Case 1:12-cv-04924-KBF Document 46 Filed 03/04/13 Page 2 of 138 1. Lead Plaintiffs, Westchester Teamsters Pension Fund and Teamsters Local 456 Annuity Fund (collectively “Plaintiffs”), on behalf of themselves and all other persons similarly situated, allege the following based upon personal knowledge as to themselves and their own acts, and on information and belief as to all other matters, based upon, inter alia, the investigation conducted by and through their attorneys. NATURE OF THE ACTION 2. This is a federal securities class action brought against UBS AG (“UBS” or the “Company”) and certain of its officers for violations of the Securities Exchange Act of 1934 (the “1934 Act”). This action is brought on behalf of all purchasers of UBS securities on any domestic exchange and/or in any domestic transaction, during the period from November 17, 2009 through September 15, 2011 (the “Class Period”), who were damaged as a result of defendants’ violations of the federal securities laws. This action seeks to pursue remedies for violations of the anti-fraud provisions of the federal securities laws. 3. Defendants are UBS, Oswald J. Grübel (“Grübel”), John Cryan (“Cryan”), Philip J. Lofts (“Lofts”) and Carsten Kengeter (“Kengeter”). Each of the individual defendants was a senior executive of UBS during the Class Period, as more fully described in ¶¶12-15. 4. This action concerns defendants’ misleading statements and material omissions regarding UBS’s purportedly robust risk management systems and internal controls. Throughout the Class Period, defendants assured investors that they were taking a “more cautious approach” to trading and that UBS’s risk management systems and disclosure controls and procedures were robust, disciplined and operating effectively. Defendants further assured investors that they were personally involved in and focused on monitoring risk at UBS, and specifically within the Company’s Investment Bank division. As defendant and former UBS CEO Grübel explained when - 1 - 819129_1 Case 1:12-cv-04924-KBF Document 46 Filed 03/04/13 Page 3 of 138 questioned about UBS’s risk management: “if ever anything goes wrong, at least you will not hear any of us say, we didn’t know . ; we do know . We do know what we are doing . We do know what kind of risks we have .” Unfortunately for investors, the picture defendants portrayed – one of a conservative financial institution supported by rigorous and effective internal controls and risk management systems – was not accurate. Rather, defendants promoted a culture of risky behavior in the interest of driving up investment banking revenues and increasing UBS’s profits, while knowingly or recklessly disregarding that the Company’s internal controls and risk management systems were wholly inadequate and had been designed and implemented to allow risky and unhedged proprietary trading to go unchecked. 5. The problems with UBS’s deficient internal controls and risk management systems became readily apparent to investors on September 15, 2011, when the Company disclosed that a “rogue” trader in the Investment Bank division had engaged in unhedged proprietary trades with non-existent counterparties that exposed the Company to losses that ultimately exceeded $2.3 billion. As a result of the disclosure of UBS’s risk management failures and poor internal controls, the Company’s stock price dropped more than 10% and UBS’s market capitalization plummeted over $4.7 billion on September 15, 2011 alone. 6. In the weeks following the September 15, 2011 disclosure, defendant Grübel accepted responsibility for the improper trading and resigned while UBS publicly acknowledged that the risk controls defendants had touted during the Class Period “were not operating effectively.” Grübel’s replacement as CEO, Sergio Ermotti, publicly acknowledged that the unhedged proprietary trading was “evidence of a failure to exercise appropriate controls,” and UBS conceded that defendants’ prior statements regarding risk and disclosure controls could not be relied upon. The Company and former officers and employees have subsequently identified specific controls that, while defendants - 2 - 819129_1 Case 1:12-cv-04924-KBF Document 46 Filed 03/04/13 Page 4 of 138 pushed for increased profits from the Investment Bank, were not implemented or enforced, and allowed unhedged proprietary trading to occur. As a result, the U.K.’s Financial Services Authority (“FSA”) and the Swiss Financial Market Supervisory Authority (“FINMA”) brought enforcement proceedings against the Company for the gaps in oversight that permitted the improper trading that took place during the Class Period, finding “ serious failings in UBS’s risk management and control environment ” and concluding that “ UBS failed to ensure that [risk management] systems and controls were fully complied with and implemented ” in the Investment Bank. JURISDICTION AND VENUE 7. The claims asserted herein arise under §§10(b) and 20(a) of the 1934 Act, 15 U.S.C. §§78j(b) and 78t-1, and the rules and regulations promulgated thereunder by the SEC, including SEC Rule 10b-5, 17 C.F.R. §240.10b-5. 8. Jurisdiction is conferred by §27 of the 1934 Act and 28 U.S.C. §1331. 9. Venue is proper in this District pursuant to §27 of the 1934 Act and 28 U.S.C. §1391. UBS conducts business in this District and its stock trades on the New York Stock Exchange (“NYSE”) in this District. THE PARTIES Lead Plaintiffs 10. By Court Order dated August 30, 2012, Westchester Teamsters Pension Fund (“Westchester”) and Teamsters Local 456 Annuity Fund (“Local 456”) were appointed Lead Plaintiffs in this action. Westchester and Local 456 are multiemployer benefits plans managed and administered in Elmsford, New York. As set forth in Westchester’s and Local 456’s Certifications, filed in connection with their motion for appointment as lead plaintiff, Plaintiffs purchased UBS - 3 - 819129_1 Case 1:12-cv-04924-KBF Document 46 Filed 03/04/13 Page 5 of 138 securities during the Class Period and, as a result of defendants’ conduct detailed herein, suffered damages in connection with those purchases. Defendants 11. Defendant UBS is a global financial services company headquartered in Zurich, Switzerland. During the Class Period, the Company provided an array of fixed income, equities, foreign exchange and investment banking services to customers in the United States and around the world. In addition, UBS provided wealth management services ranging from asset management to tax planning to clients around the globe. UBS has branch offices and subsidiaries throughout the United States, including its United States corporate headquarters at 1285 Avenue of the Americas, New York, NY 10019. At all relevant times, UBS’s common stock was listed and traded under the symbol “UBS” on the NYSE and on the SIX Swiss Exchange, both of which are efficient markets. UBS directly made, and is liable for, the misstatements and omissions set forth herein at ¶¶25-30, 34-37, 39-40, 43, 45-48, 52-55, 59-61. 12. Defendant Grübel was CEO of UBS from February 26, 2009 until his resignation on September 24, 2011, immediately following the end of the Class Period. Grübel was a member of the Company’s Group Executive Board (“GEB”) throughout the Class Period. Grübel directly made, and is liable for, the misstatements and omissions set forth herein at ¶¶29, 34-37, 39-40, 48, 52-55, 59, 61. Grübel also had authority over the content, and whether and how to communicate it, of the misstatements and omissions set forth herein at ¶¶25-28, 30, 45-47 and is liable for those misstatements and omissions. 13. Defendant Cryan was CFO of UBS from September 2008 until his departure on May 31, 2011. Cryan was also Chairman and CEO of UBS AG London Branch and UBS Limited from November 2010 through May 31, 2011 and was a member of the GEB since September 2008. Cryan - 4 - 819129_1 Case 1:12-cv-04924-KBF Document 46 Filed 03/04/13 Page 6 of 138 directly made, and is liable for, the misstatements and omissions set forth herein at ¶¶36-37, 43, 54- 55. Cryan also had authority over the content, and whether and how to communicate it, of the misstatements and omissions set forth herein at ¶¶25-30, 35, 39-40, 45-48, 52-53, 59 and is liable for those misstatements and omissions. 14. Defendant Lofts was Chief Risk Officer (“CRO”) of UBS from November 2008 through December 31, 2010, when he was promoted to CEO of UBS Group Americas. Lofts was a member of the GEB throughout the Class Period. Lofts directly made, and is liable for, the misstatements and omissions set forth herein at ¶¶25-26, 30, 45-46, 60. Lofts also had authority over the content, and whether and how to communicate it, of the misstatements and omissions set forth herein at ¶¶27-29, 35-36, 39-40, 47-48, 52-54, 59 and is liable for those misstatements and omissions. 15. Defendant Kengeter was co-CEO of UBS Investment Bank from April 27, 2009 until November 1, 2010, when he became sole head of the Investment Bank. Kengeter was a member of the GEB throughout the Class Period. Following the end of the Class Period, Kengeter was removed from the GEB and as head of the Investment Bank. He subsequently left UBS.
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