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Regulation and Compliance > Federal Regulation > SEC

UBS Settles With SEC Over Sales of ‘Complex Products’

By Janet Levaux

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The Securities and Exchange Commission said Wednesday UBS Financial Services (UBS) will pay more than $15 million to settle charges that it failed to adequately educate and train advisors about reverse convertible notes, of which some $548 million were sold to over 8,700 “relatively inexperienced” investors. 

According to the SEC’s order, UBS failed to “develop and implement policies and procedures reasonably designed to educate and train UBS registered representatives in connection with the sale of reverse convertible notes (RCNs) so that they could form a reasonable basis to make suitable recommendations.”

RCNs feature embedded derivatives, with performance driven by implied volatility; the SEC considers them to be “complex financial products.”

“We found that UBS dropped the ball by allowing the sales of complex financial products to retail investors without adequately training its sales force,” said Andrew Ceresney, director of the SEC Enforcement Division, in a statement.

The order means UBS will repay investors $8.2 million plus nearly $800,000 in interest and pay a $6 million penalty to regulators.

“The settlement is related to reverse convertible notes, with a single stock as the underlying asset. The notes were sold to clients between 2011 and 2014,” UBS explained in a statement. “We are pleased to have resolved the matter.”

“When it comes to complex financial products, investors are especially dependent upon firms making sure their financial advisors comprehend the potential risks and rewards of the investments they are recommending,” said Michael J. Osnato, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, in a statement. “The SEC takes a dim view of firms that fall short in their obligations.”

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