As losses have continued to mount for investors, claims against UBS are accelerating. Recent reporting indicates that investment losses from the Yield Enhancement Strategy (YES) could exceed $1 billion as investors pursue legal action against the wealth management firm.

The Yield Enhancement Strategy (YES) is an options strategy that UBS began marketing and using in 2015. The investments were marketed as providing modest gains while limiting downside risk. As a result of the turbulent spring that the markets faced, investors in YES have lost more than 30%. Clearly, the strategy carried significantly more risk than what UBS disclosed.

Yield Enhancement Strategy: A “low-risk” strategy that produced high-risk losses

The underlying principle of the UBS Yield Enhancement Strategy is what is known as an iron condor. Iron condors are an options strategy that allow investment gains in an underlying asset, even when there is limited price movement. In fact, iron condors tend to perform the best when the underlying asset has little or no price movement.

While upside potential is generally limited in an iron condor, the downside risk should be limited, at least in theory. This is often the case during periods of low volatility, but in periods of intense volatility, sudden price swings can lead to significant losses for investors.

The losses within an iron condor are thought to be clearly defined. Yet when markets plunged by approximately 33% as measured by the S&P 500 this year, the losses investors experienced far exceeded what they should have had the iron condor been implemented correctly. Losses of this magnitude point to evidence of misconduct that goes beyond simple market volatility.

Did UBS misrepresent investors?

To the extent UBS marketed YES as a low-risk investment option, it may be a sign of fraudulent misrepresentation. Misrepresentation is a common form of financial advisor misconduct that involves an advisor or another financial professional making false or misleading statements about an element of the transaction.

Additionally, misrepresentation applies to false or misleading statements about the risk associated with a particular investment. If it is proven that UBS drastically understated the risk of YES to investors, investors may be able to pursue legal action to recoup those losses.

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