UBS Financial Services has agreed to pay about $25 million to settle charges stemming from a complex options strategy that has been the subject of numerous disputes, the Securities and Exchange Commission has announced.
The SEC filed fraud charges against the company over the Yield Enhancement Strategy known as YES. The SEC said that from February 2016 to February 2017, UBS marketed and sold YES to about 600 investors despite not giving its financial advisors adequate training and oversight in the strategy. According to the charges, UBS recognized the possibility of significant risk in these investments but did not share this data with advisors or clients.
“As a result, the order finds, some of UBS’s advisors did not understand the risks and were unable to form a reasonable belief that the advice they provided was in the best interest of their clients,” the SEC said.
Many investors, along with their financial advisors, were surprised when the YES investments lost money and decided to close their accounts.
“Advisory firms are obligated to implement appropriate policies and procedures to ensure all parties involved in the sale of complex financial products and strategies have a clear understanding of the risks those products present,” said Osman Nawaz, Chief of the Division of Enforcement’s Complex Financial Instruments Unit. “As fiduciaries, advisers also must make suitable recommendations to their clients. Complex products can present unique risks
Without admitting or denying the SEC’s findings, UBS consented to the entry of the order that it violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.
UBS agreed to a cease-and-desist order, a censure, and to pay disgorgement of $5.8 million, prejudgment interest of $1.4 million, and a civil penalty of $17.4 million.
Along with settling the SEC charges, UBS also was ordered to pay damages recently in two more arbitration cases involving the YES strategy, according to InvestmentNews.
Two FINRA arbitration panels ruled against the firm in separate claims. In one case, UBS was ordered to pay over $252,000 to Dennis and Nadine Ainbinder, trustees of the 1992 Ainbinder Family Trust, for losses in their YES investments. The other FINRA panel awarded compensatory damages to the Richard G. Russell Jr. Revocable Living Trust in the amount of $210,000. In that case, the arbitration panel also denied a request from the co-portfolio manager that the dispute be expunged from his registration records. A total of 38 claims have been filed against UBS over the strategy, with customers winning awards 21 times and UBS winning 17 times.
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