UBS Reaches $25 Million Fraud Settlement with SEC: Options Strategy

UBS Financial Services will pay “approximately $25 million” as part of a settlement with the Securities and Exchange Commission over fraud charges stemming to its Yield Enhancement Strategy, or YES, a “complex options investment strategy.” A press release issued by the SEC in June specifies that UBS will pay $5.8 million in disgorgement, $1.4 million in prejudgment interest, and a civil penalty of $17.4 million.

As the SEC explains, YBS Financial Services used its domestic financial advisory platform to sell the Yield Enhancement Strategy to “approximately 600 investors” between February 2016 and February 2017. The SEC found that the firm failed to adequately train its supervisors on the complex strategy, and further that it did not provide sufficient oversight of the strategy. “[A]lthough UBS recognized and documented the possibility of significant risk in YES investments,” the SEC states, “it failed to share this data with advisors or clients.” These alleged failures resulted in a lack of understanding among some of the firm’s advisors as to the strategy’s risks; this in turn meant that they could not determine whether the strategy was suitable for their clients’ interests, the SEC found. Investors subsequently suffered losses, both to their surprise and that of their advisors’, and subsequently “closed their YES accounts,” per the SEC.

In a statement about the settlement, the SEC’s Chief of the Division of Enforcement’s Complex Financial Instruments Unit said: “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… 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.”

More information on the SEC’s $25 million settlement with UBS over fraud charges relating to the Yield Enhancement Strategy is available via the regulator’s press release.

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