V10 Probe

The Justice Department is examining instant messages, interviewing traders and reviewing documents given to customers to determine whether the bank misrepresented the profit it was taking on the trades, one of the people said. Peter Carr, a Justice Department spokesman, declined to comment.

“One of the issues with complex structured products that investors sometimes don’t understand is that often the payoff is not just determined by a set of rules but also by the traders executing the strategy,” said Neil Pearson, a University of Illinois College of Business finance professor who wrote an article titled “The Dark Side of Financial Innovation.”

In 2013, as regulators began investigating the foreign- exchange market, UBS looked into the V10 product, according to a person with knowledge of the matter.

Finra Complaint

The Swiss lender and five other banks paid $4.3 billion to regulators in the U.S., the U.K. and Switzerland in November in the first round of settlements from the probe. UBS is still under investigation by antitrust and criminal authorities, and 11 current and former employees, including staff on the structured-products desk, are facing enforcement action from the Swiss markets regulator, people with knowledge of the probe have said. That could include bans from the industry or disgorgement of profits, one said.

Michaelson, 56, withdrew his lawsuit last month and moved his claims to the Financial Industry Regulatory Authority, an industry group that arbitrates disputes with brokers, according to his lawyer, Christopher Vernon of Vernon Litigation Group in Naples. Vernon, who became Michaelson’s lawyer in October, said these types of disputes are typically handled in arbitration.

UBS didn’t file a response to Michaelson’s lawsuit before it was withdrawn.

Starbucks Pitch

Investors in the structured product bought notes whose value was tied to an index called the V10. Marketing documents on UBS’s website show how the index was calculated: First, currencies from the Group of 10 countries are ranked daily by their one-month interest rates. Using forward contracts, the bank bets that the three highest-yielding currencies will advance and the three lowest will decline. When volatility rises above a predetermined level, the positions are reversed.

Over coffee at a Starbucks near his house and in phone calls in 2009 and 2010, representatives from UBS’s wealth- management office in Naples pressed Michaelson, who had an investment account at the bank, to take out a loan and invest it in the V10 product, according to the complaint filed in U.S. District Court in Ft. Myers, Florida.

Michaelson, who changed his name from Walter Mihailovich, was a trader in over-the-counter U.S. government bond options at NationsBank Corp., a predecessor to Bank of America Corp., when he was involved in a crash on the FDR Drive in Manhattan, according to Vernon. He was a Collier County co-chairman for Mitt Romney’s 2008 presidential campaign. In 2009, he filed a lawsuit against Serbia’s privatization ministry in a dispute over a tender for a building-materials company.