UBS to pay $25 million to settle SEC charges involving options trading strategy

On Behalf of | Jul 7, 2022 | FINRA Compliance

The Securities and Exchange Commission said that UBS Financial Services Inc. has agreed to pay about $25 million to settle fraud charges involving its Yield Enhancement Strategy known as YES, reports AdvisorHub.

According to the SEC’s order, UBS marketed and sold YES to approximately 600 investors from February 2016 to February 2017, but did not give its financial advisors adequate training and oversight in the complex options trading strategy. The commission said that while UBS documented the possibility of significant risk in the YES investments, it 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. The strategy dropped by 18% when the market declined in 2018.

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. A spokesman for UBS said that the firm was pleased to have resolved the matter.

The SEC noted that complex products such YES pose unique risks for investors. “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.”

Financial professionals who work for broker-dealers, RIAs or other financial services companies operate in a highly regulated industry that is overseen by the SEC, state regulators and other self-regulatory organizations such as FINRA and various exchanges. The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact Lewitas Hyman at (888) 655 6002 or through our online contact form for a free consultation.

Share This