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UBS Financial Services

Background Information

In November 2000, UBS merged with Paine Webber, an iconic brokerage firm with a heritage that includes acquisitions of Blyth, Eastman Dillon & Co. and Kidder Peabody, in a deal valued at $10.8 billion in cash and stock. The merger resulted in the formation of the fourth largest brokerage firm in the country with 385 offices nationwide and over eight thousand licensed brokers. The merged entity operated under the name UBS Paine Webber until 2003 when the brokerage firm was known as UBS Financial Services.

Regulatory Violations

Since the name change UBS has been the subject of many regulatory investigations, some which resulted in disciplinary actions by regulators.

U.S. Citizen Tax Evasion Whistleblower

In 2005, UBS private banker Bradley Birkenfeld claimed to have knowledge that UBS and their United States citizen clients violated U.S. laws enforced by the Internal Revenue Service (IRS). Birkenfeld faced career setbacks as a result of UBS retaliation against him for the revelations he helped uncover for U.S. authorities. As a result of his cooperation with the IRS, they were able to prosecute UBS and their U.S. clients for tax evasion. According to a Forbes article, the IRS Whistleblower Office paid Birkenfeld a $104 million award for acting as a corporate whistleblower. Birkenfeld is credited with bringing to light UBS’ clandestine activities that were complicit with the tax avoidance schemes of U.S. taxpayers which involved billions of dollars.

2011 London Rogue Trader Scandal

According to a BBC report, UBS became aware of a massive loss on September 15, 2011 that was estimated at $2 billion, due to unauthorized trading allegedly by Kweku Adoboli. The rogue broker who was 31 years old at the time worked on the Delta One desk of UBS’ trading desk. The broker was arrested and later charged with fraud by abuse of position and false accounting dating as far back as 2008. UBS’s actual losses were subsequently confirmed as $2.3 billion, and regulatory investigators where interested in determining how these trading activities could have gone unnoticed for such an extended period without detection.

Lehman Brothers Principal Protected Notes

In 2011, the Financial Industry Regulatory Authority (FINRA) fined UBS $2.5 million in connection with the sale of Lehman Brothers Holdings structured notes for misrepresentations and omissions of material facts made to investors. From the period beginning March 2007 through September 2008, UBS sold as underwriter up to $900 million worth of 100% Principal-Protection Notes. In September 2008, Lehman Brothers filed bankruptcy leaving all guarantees worthless. As a result, UBS also agreed to pay $8.25 million in restitution to American investors. In August 2013, UBS settled a class action lawsuit filed by holders of Lehman notes. The lawsuit charged that UBS’s depiction of the financial condition of Lehman Bros. UBS settled the lawsuit with a payout of $120 million.

Municipal Bond Market Rigging

According to a Reuters report, UBS paid $160 million, for what prosecutors described the penalties as, “restitution, penalties and disgorgement for the scheme.” The three UBS employees were charged for having “steered financial contracts to their friends in exchanged for kickbacks and other favors between 2001 and 2006, while falsely certifying that the processes were competitive.” In July 2013, the three employees were convicted of conspiracy for their involvement in the municipal bond market fraud: former UBS Vice President Gary Heinz was sentenced to 27 months in prison and fined $400,000; former UBS global commodities chief Peter Ghavami was sentenced to 18 months and fined $1 million; and former UBS VP Michael Welty received a 16-month sentence and fined $300,000. After the sentencing, a federal prosecutor said, “For years, these executives corrupted the competitive bidding process and defrauded municipalities across the country for important public works projects.”

Mortgage-Backed Securities Settlement

In July 2013, UBS settled a lawsuit for $885 million that was filed by the Federal Housing Finance Agency (FHFA), for $4.5 billion in residential mortgage-backed securities (RMBS) that UBS sponsored and another $1.8 billion of third-party RMBS sold to Fannie Mae and Freddie Mac, plus $1.2 billion in interest. The lawsuit claimed that UBS and the other banks falsified information on the risk of mortgage-backed securities it sold to the two federal agencies. The securitization of mortgages was a significant source of underwriting income for UBS through providing liquidity to the mortgage origination marketplace.

UBS Financial Services of Puerto Rico Closed-End Funds

UBS Financial Services of Puerto Rico issued $10 billion in proprietary closed-end bond funds concentrated in Puerto Rico municipal bonds. In February 2014, Puerto Rico’s general obligation bonds were downgraded to junk bond status by Standard & Poor’s, Moody’s and Fitch’s credit ratings agencies which resulted in continued losses in excess of 50% of the initial IPO price. Silver Law Group managing partner, Scott L. Silver was a featured commentator the Bond Buyer magazine article titled, UBS Puerto Rico Faces Surge in Arbitration Claims , which details the rise in securities arbitration claims filed as a result of the catastrophic losses experienced by Puerto Rico investors.

FINRA Fines and Sanctions – UBS Financial Services

Source: FINRA, Financial Industry Regulatory Authority, Inc. Full Disciplinary Reports Available to the public at: www.finra.org.

UBS Financial Services Inc. (CRD #8174, Weehawken, New Jersey) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $50,000. Without admitting or denying the findings, the firm [UBS] consented to the described sanctions and the entry of findings that it failed to adequately supervise the recommendations of alternative investments one of its registered representatives made to a firm institutional customer, for the purchase of private equity funds totaling $3 million. The findings stated that the firm was unaware of the investment policy the institutional customer maintained at the time of the transactions and did not assess the concentration of alternative investments against the customer’s investment policy. The recommendations were inconsistent with the investment policy the customer maintained, and the institutional customer’s efforts to improve its cash flow were hampered, in part, by the illiquidity of the alternative investments. The findings also stated that the firm failed to establish, maintain and enforce adequate WSPs reasonably designed to ensure the proper supervision of certain institutional accounts subject to asset allocation restrictions, and which provided tools to supervisors regarding the review and assessment of concentration levels in alternative investments. The findings also included that the firm’s WSPs did not explicitly direct branch managers to review and assess documents, bearing on the authority of certain institutional customers to purchase specified investments, including any investment policy limiting or restricting the customer’s authority to make certain investments. FINRA found that the firm did not maintain any mechanism to assess and review the concentration levels of alternative investments the customers held. ( FINRA Case #2009019434801)

UBS Financial Services Inc. (CRD #8174, Weehawken, New Jersey) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $260,000. The firm has paid a total of $131,534.81 in restitution to address the violations of MSRB Rules G-17 and G-30(a), NASD Rules 2110 and 2320, and FINRA Rule 2010. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it purchased municipal securities for its own account from customers and/or sold municipal securities for its own account to customers at an aggregate price (including any markdown or markup) that was not fair and reasonable, taking into consideration all relevant factors, including the best judgment of the broker, dealer or municipal securities dealer as to the fair market value of the securities at the time of the transactions and of any securities exchanged or traded in connection with the transactions; the expense involved in effecting the transactions; the fact that the broker, dealer or municipal securities dealer is entitled to a profit; and the total dollar amount of the transactions. The findings stated that in transactions for or with customers, the firm failed to use reasonable diligence to ascertain the best inter-dealer market, and failed to buy or sell in such market so that the resultant price to its customers was as favorable as possible under prevailing market conditions. The findings also stated that the firm failed to report block S1 transactions in TRACE-eligible agency debt securities and TRACE-eligible corporate debt securities to TRACE within 15 minutes of the execution time. ( FINRA Case #2009018081101)

Silver Law Group

Silver Law Group is a nationally recognized securities and investment fraud law firm with Martindale-Hubbell® Peer Review Ratings™ “AV” rated lawyers that handle all securities arbitration matters on a contingency fee basis. The Law Firm, at no cost to investors will review account activity and account statements to determine whether there was any misconduct, whether there are damages and the legal causes of action. We investigate all sales practice violations, while taking into consideration the investor’s age, investment background, and the relationship between the investor and the brokerage firm and its financial advisor. According to securities industry rules and regulations, unsuitable investment advice, securities concentration, fraudulent misrepresentations and omissions of material facts, breach of fiduciary duty, conflicts of interest, variable annuity switching are among the causes of action that may be available to investors in claims for damages against brokerage firms and their financial advisors in a securities arbitration claim filed with the Financial Industry Regulatory Authority (FINRA). We represent investors in FINRA arbitration claims on a contingency fee basis.

To learn more call us at (954) 755-4799 or Toll Free at (800) 975-4345

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