More On Legal & Compliancefrom The Advisor's Professional Library
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
UBS Financial Services, Inc., will pay a fine of $2.5 million to FINRA and $8.25 million to investors as restitution to settle FINRA charges “for omissions and statements made that effectively misled some investors regarding the ‘principal protection’ feature of 100% Principal-Protection Notes (PPNs) Lehman Brothers Holdings Inc. issued prior to its September 2008 bankruptcy filing,” according to a FINRA announcement on Monday.
FINRA’s announcement states that “From March to June 2008 as the credit crisis worsened, UBS advertised and some UBS financial advisors described the structured notes as principal-protected investments and failed to emphasize they were unsecured obligations of Lehman Brothers, which eventually filed for bankruptcy in September 2008.” At issue was the “issuer credit risk” of the notes, which became relevant because of Lehman’s bankruptcy.
In a FINRA-UBS letter of acceptance, waiver and consent, FINRA described UBS’ alleged “statements and omissions having the effect of misleading certain customers,” and outlined “inadequate disclosures and FAs’ failure to accurately describe Lehman PPNs to certain customers during the relevant period.” The letter adds that UBS “failed to disseminate adequately to its FAs certain market information relating to Lehman’s financial condition.”
The letter also outlines “supervision violations” in to “FA training,” and “sales practices,” and stated that “during the relevant period certain sales of Lehman PPNs were unsuitable.”
When asked if other announcements were forthcoming regarding the PPNs, FINRA spokeswoman Michelle Ong responded, “FINRA is continuing to review matters involving Principle Protection Notes.”
In a statement emailed to AdvisorOne, UBS spokeswoman Karina Byrne, stated: "UBS is pleased to have resolved this FINRA matter, under which UBS is required to reimburse a limited number of investors who purchased certain Lehman principal protection notes during a discrete 3 1/2 month period of time. The significant majority of UBS's Lehman structured product sales were conducted properly and any client losses were the direct result of the unprecedented and unexpected failure of Lehman Brothers in 2008, which affected all Lehman investors."