The U.S. Supreme Court sided with UBS Financial Services Inc of Puerto Rico in a legal battle on Monday when it formally dismissed the charges against the company. UBS was facing a shareholder derivative lawsuit filed by pension plans in Puerto Rico. A high court ruling on the case had been due in the term starting this October and would run until June of next year.
A shareholder derivative suit is defined as a lawsuit brought against a third party by a shareholder on behalf of a corporation. This type of lawsuit is unique because traditional corporate law requires management to defend the coporation against a lawsuit. A shareholder derivatie suit allows a shareholder to initiate a suit in cases where management has failed to do so.
In the current lawsuit, investors Union de Empleados de Muelles de Puerto Rico PRSSA Welfare Plan and Union de Empleados de Muelles de Puerto Rico AP Welfare Plan sued on behalf of the funds. They claimed that the fund directors and the subsidiary of UBS AG had violated securities laws when purchasing approximately USD757 million worth of bonds issued by the Employee Retirement System of the Government of Puerto Rico. The bonds were underwritten by another unit of UBS.
Although a federal judge initially dismissed the lawsuit, the Supreme Court had agreed to hear the case. In a January 4, 2013 ruling, however, the 1st U.S. Circuit Court of Appeals in Boston said that the investors had shown that a pre-lawsuit demand to the directors would have been pointless.
The Supreme Court justices dismissed the case due to a separate ruling on July 9 by a U.S. District Court judge in Puerto Rico. The judge noted in that decision that the plaintiffs had sold their shares and that they no longer had standing to pursue claims in the Supreme Court case.
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