Alex Padalka
Jun 30, 2022
The regulator alleges that UBS didn’t give its advisors access to data on the risks associated with the complex investment strategy.
The Securities and Exchange Commission says it has ordered UBS to pay roughly $25 million over alleged fraud tied to the company’s in-house complex investment strategy known as YES, or Yield Enhancement Strategy. UBS’ YES program involves placing several option trades at different strike prices with the same expiration dates, designed to lower exposure in times of market volatility. But the strategy suffered significant losses starting in December 2018.
The SEC alleges that from February 2016 through February 2017, UBS marketed and sold the strategy to around 600 investors through its domestic financial advisors. The company allegedly didn’t provide the advisors with sufficient training or oversight in the strategy, according to an administrative proceeding document published on Wednesday.
Moreover, despite recognizing and documenting the potential for significant risk in the YES program, UBS allegedly didn’t share the data with the advisors nor the clients, the SEC says. As a result, UBS’ advisors allegedly couldn’t “form a reasonable belief that the advice they provided was in the best interest of their clients,” according to the document.
“When investors suffered losses, many of them, along with their financial advisors, expressed surprise and closed their YES accounts,” the SEC added.
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UBS consented to a cease-and-desist order and a censure and to pay disgorgement of $5.8 million plus prejudgment interest of $1.4 million, as well as a $17.4 million civil monetary penalty, without admitting or denying the findings, according to the document.
UBS has also faced multiple arbitration claims over the YES program. Arbitrators have ordered UBS to pay out millions of dollars to claimants over the strategy, but some arbitration panels have ruled in favor of UBS.
In January, one investor filed a lawsuit in federal court in New York seeking class action status on behalf of himself and 1,500 other clients who invested in the strategy.
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