UBS Enters Into $25 Million Settlement with SEC Related to Yield Enhancement Strategy (YES) Fraud Allegations

The U.S. Securities and Exchange Commission (SEC) has announced a landmark settlement with UBS Financial Services Inc. related to the firm’s Yield Enhancement Strategy (YES). According to the SEC, UBS “has agreed to pay approximately $25 million to settle fraud charges relating to a complex investment strategy referred to as YES.”

The YES settlement between UBS and the SEC is notable for several reasons. Most significantly, while UBS agreed to the settlement without admitting or denying the SEC’s findings of fraud, in our opinion the settlement is still a clear signal that UBS is aware of what transpired with regard to its brokers’ sale of the YES product. As we have discussed previously—and as YES investors have successfully claimed in FINRA arbitration—there is now strong evidence indicating that UBS brokers sold the high-risk YES strategy without disclosing (and in many cases without understanding) the significant risks involved.

What UBS YES Investors Need to Know About the Firm’s Settlement with the SEC

If you lost money investing in UBS’ Yield Enhancement Strategy, there are some important facts you need to know about the firm’s settlement with the SEC. These facts include:

1. The SEC Found that UBS Violated Federal Law When Selling Its YES Product

As discussed in the SEC’s order, following its investigation, the SEC concluded that UBS violated two key provisions of the Investment Advisers Act of 1940. It also found that UBS violated SEC Rule 206(4)-7. The charges underlying UBS’ settlement with the SEC are:

• Violation of Section 206(2) of the Investment Advisers Act of 1940 – Section 206(2) prohibits broker-dealers from engaging in “any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.”
• Violation of Section 206(4) of the Investment Advisers Act of 1940 – Section 206(4) prohibits broker-dealers from engaging in “any act, practice, or course of business which is fraudulent, deceptive, or manipulative.”
• Violation of SEC Rule 206(4)-7 – Under SEC Rule 206(4)-7, “it is unlawful for an investment adviser registered with the Commission to provide investment advice unless the adviser has adopted and implemented written policies and procedures reasonably designed to prevent violation of the Advisers Act by the adviser or any of its supervised persons.”

2. The SEC Found that UBS and Its Brokers Defrauded Approximately 600 Investors in 2016 and 2017

The SEC’s investigation focused specifically on UBS’ sale of the YES strategy from February 2016 to February 2017. During this time, the SEC found that UBS and its brokers defrauded approximately 600 investors. However, our investigations have revealed that many investors have suffered fraudulent YES-related losses outside of this timeframe as well.

3. The SEC Blames Both UBS and Its Brokers for Defrauding Investors In Relation to the YES Strategy

While UBS’ brokers were on the front lines of misleading investors about the YES strategy, the SEC blames both the firm and its employees for perpetrating the fraud. For example, the SEC’s press release states that:

• “UBS did not provide its financial advisors with adequate training and oversight in the strategy;”
• “[A]lthough UBS recognized and documented the possibility of significant risk in YES investments, it failed to share this data with advisors or clients;” and,
• “[S]ome of UBS’s advisors did not understand the risks and were unable to form a reasonable belief that the advice they provided was in the best interest of their clients.”

4. UBS Agreed to Pay $7.2 Million in Disgorgement and Interest

As part of the settlement, UBS agreed to pay $5.8 million in disgorgement and $1.4 million in prejudgment interest. The settlement provides that these amounts are “deemed satisfied by payments made to investors in related arbitration proceedings.” These related arbitration proceedings include FINRA cases in which Zamansky LLC has secured financial recoveries for YES investors.

5. UBS Also Agreed to Pay a Civil Penalty of $17.4 Million to Harmed Investors

In addition to the $7.2 million that is deemed satisfied by the FINRA arbitration cases resolved to date, UBS agreed to pay an additional civil penalty of $17.4 million. The firm is obligated to distribute this amount to harmed investors in accordance with the fair fund provisions of Sarbanes-Oxley.

What To Do if You Have Suffered Investment Losses with the UBS Yield Enhancement Strategy (YES)

If you have suffered investment losses with UBS’ YES strategy, we recommend that you contact us immediately. Our lawyers can assist you with obtaining compensation under the SEC’s settlement if you qualify and, if necessary, we can represent you in FINRA arbitration against UBS. Call 212-742-1414 or contact us online for a free consultation today.