On Wall Street, it is one of the fastest-growing, most lucrative businesses: providing a range of brokerage services to hedge funds, the Wall Street Journal reports.
A lawsuit filed this week in Manhattan state court offers a vivid description of alleged conflicts for Wall Street giants in what is known as prime brokerage.
Investors in Wood River Partners LP, a hedge fund that collapsed in 2005, have charged that UBS AG, the fund’s prime broker, fraudulently earned more than $100 million by misusing knowledge of the fund’s trades.
The plaintiffs, which collectively invested $79 million in Wood River, say UBS earned profits by selling borrowed shares in Wood River’s biggest single stock holding, Endwave Corp., and helping other UBS clients do the same.
“UBS intends to defend itself vigorously against these allegations,” a spokeswoman for UBS said in a prepared statement. She declined to elaborate. The lawsuit claimed $200 million in damages.