UBS Financial Services has agreed to pay $25 million to settle fraud charges by the Securities and Exchange Commission related to a complex investment strategy referred to as YES, or yield enhancement strategy.
UBS marketed and sold the YES to approximately 600 investors through its platform of domestic financial advisors from February 2016 through February 2017. According to the SEC, UBS did not provide its financial advisors with adequate training and strategy oversight during this time. Also, while UBS recognized and documented the possibility of significant risk in YES investments, it failed to share this data with advisors or clients.
As a result, some of UBS’s advisors did not understand the risks and were unable to properly provide advice that was in the best interest of their clients, the SEC charged. When investors suffered losses, many of them, along with their financial advisors, expressed surprise and closed their YES accounts.
“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,” Osman Nawaz, chief of the Division of Enforcement’s Complex Financial Instruments Unit, said. “As fiduciaries, advisers also must make suitable recommendations to their clients. Complex products can present unique risks, and the SEC will remain vigilant and continue to take action to protect those who invest in these products from misconduct.”
Without admitting or denying the SEC’s findings, UBS agreed to a cease-and-desist order, a censure, and to pay disgorgement of $5.8 million and prejudgment interest of $1.4 million. Also, UBS agreed to pay a civil penalty of $17.4 million, which it will undertake to distribute to harmed investors pursuant to the fair fund provisions of the Sarbanes-Oxley Act of 2002.
James Murtha, Jonathan Shapiro, and Brent Mitchell conducted the SEC’s investigation. It was supervised by Reid A. Muoio of the Complex Instruments Unit with assistance from Timothy Halloran of the Trial Unit.