UBS Financial Services has agreed to pay $15 million to settle SEC charges of unsuitable structured-note sales.
The settlement, announced Wednesday, requires UBS to disgorge $9 million and pay a $6 million penalty for alleged unsuitable sales of reverse convertible notes.
The SEC claimed that from 2011 through 2014, UBS improperly sold about $548 million of reverse convertibles to 8,743 customers who had “little or no relevant investing experience,” modest reported income, and moderate or conservative investment objectives, the agency said in its charging document.
Reverse convertibles pay an attractive interest rate, with the ultimate return depending on the performance of an underlying stock. Investors have some downside protection from the stock, but like all structured products the notes are unsecured debt obligations of the issuer.
In UBS’s case, structured notes are a big business and an important source of capital.
The SEC said UBS sold more than $19.6 billion of structured notes from 2011 through 2014, of which approximately $10.7 billion were reverse convertibles.
In announcing the settlement, SEC enforcers highlighted their “sophisticated coding techniques” that allowed the agency to search for retired customers and investors of modest means and experience at UBS who bought reverse convertibles.
“We found that UBS dropped the ball by allowing the sales of complex financial products to retail investors without adequately training its sales force,” said Andrew Ceresney, director of the SEC’s enforcement division, in a statement.
“We are pleased to have resolved the matter,” said UBS spokesman Gregg Rosenberg, in an email.
The SEC said UBS cooperated with the investigation.
In settling, the firm neither admitted nor denied the charges.