Regulators sue UBS over securities for students

BOSTON (Reuters) - New Hampshire securities regulators sued Swiss bank UBS AG (UBSN.VX) Thursday on charges of improperly selling securities to help students finance their education.

State securities regulators allege that UBS knew the auction-rate securities market, long considered a highly liquid alternative to money market funds, was on the verge of collapse but still urged the state's Higher Education Loan Corp (NHHELCO) to keep selling the securities.

A number of U.S. states, including New Hampshire, began investigating after the $330 billion auction-rate securities market seized up in February.

UBS and U.S. bank Citigroup Inc (C.N), in separate agreements with New York state, have agreed to buy back billions of dollars of the securities from investors.

U.S. and state regulators are close to settling with several other banks accused of mishandling sales of the securities, the Texas securities commissioner said on Wednesday.

"New Hampshire is one of the first states to focus on the consequences of failed auction markets to other parties besides investors, specifically regarding students," Mark Connolly, New Hampshire's director of securities regulation, said in a statement on Thursday.

UBS underwrote $1.5 billion in NHHELCO auction-rate securities that remain frozen, and the state corporation has been unable to issue new debt.

(Reporting by Svea Herbst-Bayliss and Scott Malone; editing by John Wallace)