The U.S. Securities and Exchange Commission (SEC) announced that UBS Financial Services Inc. has agreed to pay approximately $25 million to settle fraud charges relating to a complex investment strategy referred to as YES, or Yield Enhancement Strategy. According to the SEC’s order, UBS marketed and sold YES to approximately 600 investors through its platform of domestic financial advisors from Feb 2016 through Feb 2017 but failed to adequately educate them.
According to the agency, UBS did not provide its financial advisors with adequate training, and although UBS recognized and documented the possibility of significant risk in YES investments, it failed to share this data with advisors or clients. As a result, the order finds, that some 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. When investors suffered losses, many of them, along with their financial advisors, expressed surprise and closed their YES accounts.
UBS consented to the entry of the SEC’s order finding that it violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the SEC’s findings, UBS agreed to a cease-and-desist order, a censure, and to pay disgorgement of $5.8 million and prejudgment interest of $1.4 million, which is deemed satisfied by payments made to investors in related arbitration proceedings. UBS also agreed to pay a civil penalty of $17.4 million, which it will undertake to distribute to harmed investors pursuant to the fair fund provisions of the Sarbanes-Oxley Act of 2002.
