November 18, 2010 / 5:32 PM / 10 years ago

UBS to settle Massachusetts hedge fund hotel case

* UBS to pay $100,000 in settlement

* Settlement ends eight-year probe

BOSTON, Nov 18 (Reuters) - UBS AG UBSN.VX has agreed to $100,000 to settle charges in Massachusetts that it failed to disclose that it traded favors like high-end office space in exchange for hedge funds’ business.

The settlement, announced on Thursday by Massachusetts Secretary of State William Galvin, ends an eight-year investigation into so-called hedge fund hotels, where start-up hedge fund managers receive low-rent office space in high-end buildings. In return, the newcomers were expected to send their trading business to UBS, Galvin charged.

UBS will also have to hire an independent consultant to review its disclosure policies and report back to Galvin’s office on what steps have been taken to keep investors fully informed.

When the investigation was first made public three years ago, Galvin charged there was a conflict that harmed investors who did not know the hedge funds were receiving beneficial treatment in return for sending the bulk of their business to UBS.

UBS offered Boston-based hedge funds office space with amenities such as IT service, pantries stocked with snacks, catered lunches, and receptionists, for less than half the market rate, according to Galvin.

The buildings are in the city’s financial district, near the harbor, Federal Reserve Bank of Boston and the city’s main train station.

If hedge funds failed to deliver enough business to the bank, they were asked to move out, Galvin found.

UBS was not the only bank trading these sorts of favors; the practice occurred in other large cities as well, Galvin said. (Reporting by Svea Herbst-Bayliss; editing by John Wallace)

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