A settlement has been reached over allegations that UBS Wealth Management USA’s broker-dealer failed to adequately supervise its brokers, according to AdvisorHub.
In a disciplinary letter published recently, the Financial Industry Regulatory Authority said the supervisory lapses by UBS allowed brokers to recommend $2 billion in 38,000 unsuitable short-term trades of preferred stock to customers in order to generate fees and commissions totaling 4%. The case involved at least 22 representatives or teams that recommended clients purchase preferred stocks and sell them within 180 days.
UBS Financial Services agreed to pay nearly $3.5 million to settle the charges. FINRA’s penalties included a censure, disgorgement of $2.65 million in commissions, a $500,000 fine and almost $344,000 in restitution to customers charged for premature sales. UBS, based in New Jersey, consented to FINRA’s findings but did not admit or deny the allegations.
FINRA stated that from January 2017 to at least December 2018, UBS failed to establish and maintain a supervisory system that adequately assessed whether its registered representatives recommended short-term trades of syndicate preferred stocks that were unsuitable to retail customers.
“At least 22 UBS-FS representatives or representative teams recommended that [its] retail customers purchase syndicate preferred stocks and then sell the positions within 180 days, causing the customers to sustain losses on these transactions, while the representatives collected concessions and commissions,” according to FINRA’s letter of acceptance, waiver, and consent.
The letter went on to say, “Trading in syndicate preferred stock is subject to potential abuse where representatives make recommendations to customers to purchase the security, collect the sales concession, and then recommend a short-term sale of the security. This practice is particularly concerning if the representative then solicits the customer to purchase a different preferred stock, again receiving a front-end sales concession.”
By 2023, UBS had updated its supervisory systems and guidance to review for improper short-term syndicate sales, according to the settlement.
The firm was found to be in violation of FINRA Rule 3110(a), which requires a member firm to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and FINRA rules.
Conduct that violates FINRA Rule 3110 also violates Rule 2010 which requires FINRA member firms, in the conduct of their business, to observe high standards of commercial honor and just and equitable principles of trade.
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