Senior bankers at UBS pulled $21 million of their own money out of the collapsed auction-rate securities market while continuing to tell clients their money was safe, according to charges from the New York Attorney-General.

Andrew Cuomo said seven UBS bankers, who have not been named, sold their personal holdings in the three months leading up to the collapse of the auction-rate securities market because they knew it was heading for a crisis.

At the same time, Mr Cuomo alleges in a lawsuit filed against UBS in New York, the bank continued to market and sell tens of billions of dollars of the securities to its clients.

The lawsuit, filed last night, does not target any individual bankers. Mr Cuomo declined to comment on whether any may face criminal charges as the investigation progresses.

In a statement, UBS said that while some of its employees had exercised “poor judgment” and it was considering disciplinary action, none had broken the law.

The bank said it was “frustrating” that the Attorney-General had brought the case while the bank was involved in negotiations to rescue the auction-rate securities market, which collapsed in February leaving investors with $37 billion of illiquid assets.

Auction-rate securities are a popular US debt instrument that is held as an alternative to cash because they earn slightly higher rates of interest but can usually be sold at any time.

Several large investment banks are active brokers in the $330 billion (£165 billion) market, which became a casualty of wider credit market problems.

UBS is facing similar charges from the state of Massachusetts and Mr Cuomo has requested documents from other banks.

“UBS is not alone in this scheme, we are looking at a number of other banks.” Mr Cuomo said.

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• Linklaters trounces rivals as UK's biggest firm
• Clifford Chance profits plunge 37 per cent
• Casual drinkers hit by spread of 'dry' zones