The list of companies slapped by the auction rate securities debacle continues to grow. This morning, Lakes Entertainment (NASDAQ: LACO) issued a press release announcing an agreement with UBS AG (NYSE: UBS) that's worth quoting verbatim:

... effective April 11, 2008, it entered into a client agreement with UBS Financial Services ... for the purpose of borrowing and/or obtaining credit in a principal amount not to exceed $11.0 million ("Margin Account Agreement"). The Margin Account Agreement is secured by Lakes' auction rate securities ("ARS") held at UBS ... As previously announced, the types of ARS investments that the Company owns are backed by student loans, the majority of which are guaranteed by the U.S. government and all of which have credit ratings of AAA or Aaa. Historically, these ARS investments have been highly liquid, using an auction process that resets the applicable interest rate at predetermined intervals, typically every 28 days, to provide liquidity at par. However, as a result of the recent liquidity issues experienced in the global credit and capital markets, the auctions for all of the Company's ARS investments failed beginning in February 2008 when sell orders exceeded buy orders.

No 8-K detailing the terms of the margin account agreement has yet been released, so we don't know what interest rate they're paying for the credit. But it may be higher than the yield on the auction rate securities that UBS sold to them.

Here's what makes this situation a mess. UBS was recently subpoenaed by New York Attorney General Andrew Cuomo, seeking information about whether the firm misled investors in auction rate securities into believing that the investments were cash-like and more liquid than they have turned out to be.

Now that these companies don't have access to the cash they thought wouldn't be a problem to get at, UBS is helping them out: by letting them use the ARS as collateral to borrow from the bank that got them into this mess: presumably, with interest.