UBS Financial Services will pay $24.6 million to settle charges the firm was aware of the program’s significant risks and yet knowingly provided its advisors with inadequate training, the Securities and Exchange Commission announced.
The settlement follows a flurry of Finra arbitrations related to the firm's Yield Enhancement Strategy (YES) over the last six months, in which retail customers who were directed to a YES investment have been winning awards greater than their losses.
“I think that’s been a big feature in these cases,” said Stefan Apotheker, a senior associate trial attorney with Erez Law, Miami. “Since March we’ve tried four of these cases with $4.2 million in losses, and the complainants were awarded $7.36 million. We think the panels are recognizing that the way this was being marketed and sold to advisors and clients is markedly different to what UBS knew the risks were.”
His most recent case, for example, alleged clients Jeff and Karen Misner lost about $393,000 after their UBS advisor sold them on the YES program, and the Finra panel awarded $475,482 in compensatory damages, $500,000 in punitive and another $366,636 in attorneys’ fees and costs, for a total of $1,342,000, the Finra award filing stated.
Apotheker said his firm has another dozen cases pending.
The SEC’s findings related specifically to the period between February 2016 and February 2017, during which time UBS marketed and sold the YES program to some 600 advisory clients who committed about $2 billion in assets to what was considered by all to be a complex investment strategy, acording to the agency.
“UBS provided its financial advisors inadequate training or dedicated supervisory oversight in this complex options trading strategy. ... As a result [a certain number] of them did not understand the significant downside risk,” the SEC said.
In early 2017, UBS held a comprehensive “front-to-back” review of how advisors were marketing the program to clients, and based on the findings rolled out formal training and other enhanced supervisory controls, the SEC said.
In a prepared statement, UBS said it "is pleased to have amicably resolved this matter related to training provided between February 2016 and February 2017 for an options overlay strategy. UBS appreciates the SEC’s acknowledgment that in early 2017, UBS voluntarily remediated the issue by enhancing its risk control framework and strengthening its training program for the strategy.”
The settlement called for disgorgement of $5.8 million plus prejudgment interest of $1.4 million and a $17.4 million civil monetary penalty.