NEW YORK - New York Attorney General Andrew Cuomo sued banking giant UBS on Thursday, accusing the company of fraudulently promoting tens of billions of dollars of auction-rate securities as safe when it knew a crisis was brewing.

The lawsuit claims several bank executives pulled their personal investments from the floundering market last winter, even as the company continued to tell customers all was well.

“They knew what was happening to the market,” said Cuomo deputy Eric Corngold. “Buyers of these securities didn't have a clue.”

Some 50,000 bank customers have been stuck holding $37 billion worth of the securities, unable to sell them since the market collapsed in February.

UBS said in a statement that while some of its employees exercised “poor judgment,” none had engaged in illegal conduct.

“It is frustrating that the New York attorney general has filed this complaint while we have been fully engaged in good faith negotiations with his office to bring liquidity to our clients holding auction-rate securities,” the statement said.

The lawsuit, filed in state court in Manhattan, is expected to be just one in a string of actions against banks for their conduct in the $330 billion auction-rate securities market.

UBS already faces similar civil charges in Massachusetts and Cuomo's office has subpoenaed records from other financial institutions.

“UBS is not alone in this scheme,” Cuomo said at a news conference Thursday. “We are looking at a number of other banks.”

New York's lawsuit names UBS Securities LLC and UBS Financial Services Inc. as defendants. Both are units of UBS AG, based in Switzerland.

The lawsuit does not target individual executives, and Cuomo declined to say whether any might face criminal charges as the probe continues.

State investigators said they had identified seven UBS executives who sold $21 million of their personal stakes in the market in the three months leading up to its collapse.

Many of those sales occurred as company officials were anguishing over the market's future in internal e-mails, with one referring to it as a “huge albatross” and another calling the situation “scary and delicate.”

“I want to get out of arcs. Let's talk Monday,” one executive wrote to his personal investment adviser on Dec. 14, just hours after receiving a company e-mail warning of potential problems in the market.

Within seven days, the executive had sold off all $250,000 of his personal investments in auction-rate securities. Other executives sold millions, the suit said.

The lawsuit withheld the employees' names, identifying them only as “Executive A” or “Executive B.”

UBS said in its written statement that it was considering disciplinary action against some of these officials.

The company added, though, that it had always “acted in the clients' best interests in this matter.” It said it had supported the auctions longer than any other major firm and would defend itself vigorously against claims that it abandoned customers.

For years, banks promoted auction-rate securities as being both secure and liquid. They were issued by a broad range of municipal authorities, students lenders and others. Their primary difference from traditional bonds is their interest rates were reset at regular auctions, some as frequently as every week.

But tens of thousands of buyers were stuck holding the securities for months or longer when the auction market collapsed last February due to turmoil in the credit markets. The investment banks that had guaranteed liquidity pulled back, leaving sellers with no willing buyers.

Cuomo said his primary goal was to force UBS to make those assets liquid again.

“People want and need their money back,” he said.

AP-ES-07-24-08 1708EDT