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Regulation and Compliance > Federal Regulation > FINRA

UBS Must Pay Clients $1.4M Over YES Options Strategy

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What You Need to Know

  • An arbitration panel awarded $1.4 million to UBS clients who alleged the firm's options-trading strategy exposed them to risk.
  • The claimant in this latest dispute over the UBS YES strategy was awarded less in damages than requested.
  • The claimant was pleased with the arbitration panel's decision, its attorney told ThinkAdvisor.

UBS Financial Services must pay $1.4 million to additional clients who alleged that the firm’s Yield Enhancement Strategy (YES) — which focused on options-based trading — was unsuitable and inappropriate for their risk tolerance and investment objectives, according to an arbitration award posted on FINRA’s website on Wednesday.

Included in the award by a three-person panel of public arbitrators in Albuquerque, New Mexico, was $1.1 million in compensatory damages that included $933,092 for out-of-pocket losses and $176,393 in prejudgment interest.

The $1.4 million also included $26,148 in costs related to expert witness fees, $311,031 in attorneys’ fees based on contingent fee retainer and pursuant to New Mexico statutes, and $425 as reimbursement for the nonrefundable filing fee previously paid to FINRA Dispute Resolution Services.

UBS did not immediately respond to a request for comment on Thursday.

“As a general matter, our clients and we are very pleased that the FINRA arbitrators recognized UBS’s misconduct in the marketing and implementation of the YES strategy,” Jeffrey B. Kaplan, a partner in the law firm Dimond Kaplan & Rothstein that represented The David and Heather Weir Family Trust, the claimant, told ThinkAdvisor by email.

Fraud and Negligence Alleged

In its statement of claim, the claimant asserted that UBS was guilty of fraud, misrepresentation, unsuitable product, breach of fiduciary duty, negligence, failure to supervise, and breach of contract under the federal securities laws, FINRA regulations, applicable New Mexico state securities laws and applicable common law.

The causes of action related to UBS’s Yield Enhancement Strategy (YES), a managed-account options strategy product.

In the statement of claim, the claimant requested compensatory damages of about $1 million, including recovery of all trading losses, margin interest and fees received by UBS.

The claimant also requested recovery of pre- and post-award interest, costs, expenses, attorneys’ fees, expert fees, and forum fees of the arbitration; and unspecified punitive damages “to punish and deter Respondent from any future similar conduct.”

At the hearing, the claimant requested compensatory damages of $1.1 million, plus attorneys’ fees of $369,828, punitive damages of $3.3 million, filing costs of $1,725, and expert witness fees of $26,148. The arbitration panel didn’t award the expert witness fees.

In its statement of answer, UBS requested that the statement of claim be dismissed in its entirety and with prejudice, as well as expungement of the matter from the Central Registration Depository records of William Montgomery Cerf, and any and all associated persons who may be affected by this claim. Both of the wirehouse’s requests were denied by the panel.

Cerf, a registered broker and advisor for UBS since 2015, according to his report on the Financial Industry Regulatory Authority’s BrokerCheck website, did not immediately respond to a request for comment. In his 26 years in the sector, he has been the subject of six client disputes, according to disclosures on his BrokerCheck report. Five of them are still pending.

Prior YES Disputes

There have already been many disputes between UBS and clients over the YES strategy. Of the 29 cases believed to have gone to a decision so far, UBS prevailed in 15, while the claimants received at least some compensation in the other 14.

Earlier this month, an arbitration panel ordered UBS to pay $2.9 million in compensatory damages plus nearly $966,000 in legal fees to additional clients who alleged that the firm’s YES strategy was unsuitable and inappropriate for their risk tolerance and investment objectives.

In March, a FINRA arbitration panel ordered UBS to pay nearly $1.2 million in compensatory damages plus interest to clients who alleged the YES strategy was misrepresented to them and wound up exposing them to risk of loss.

(Photo: Shutterstock)


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