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Industry Spotlight > Wirehouse Firms

UBS to Pay $25M SEC Penalty Over Complex Options Strategy

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UBS Group AG agreed to pay the U.S. Securities and Exchange Commission $25 million in penalties to settle allegations that some its advisers recommended a complex investment strategy involving options that may not have been in their clients’ best interest.

UBS investment advisors marketed and sold YES, or Yield Enhancement Strategy, for about a year starting in February 2016 even though some didn’t understand the risks themselves, according to the SEC.

The Swiss firm’s UBS Financial Services Inc. unit failed to provide adequate training and when investors lost money both money managers and clients said they were surprised.

The firm, which didn’t admit or deny wrongdoing, agreed to pay a $17.4 million penalty plus more than $7 million in disgorgement and interest. “UBS is pleased to have amicably resolved this matter,” it said in a statement. “UBS appreciates the SEC’s acknowledgment that in early 2017, UBS voluntarily remediated the issue by enhancing its risk control framework and strengthening its training program for the strategy.”

UBS told clients that the strategy historically generated gains of 3% to 5% per year but it suffered losses in early 2018 when market volatility began to increase, eventually losing 18% that year, according to an SEC settlement order released on Wednesday.

“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,” Osman Nawaz, head of the SEC enforcement division’s complex financial instruments group, said in a statement. “As fiduciaries, advisers also must make suitable recommendations to their clients.”

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