UBS Financial Services Inc. lost a $371,000 legal claim last week to clients who invested in an options strategy internally marketed at the firm as the Yield Enhancement Strategy.
It was the ninth such investor arbitration claim heard by a panel under the aegis of the Financial Industry Regulatory Authority Inc., with UBS winning six, meaning investors received no money, and claimants, or customers, winning three, according to an industry executive who asked not to be named.
The UBS customers or claimants in the most recent YES case were Matthew and Lisa Fisher, who alleged negligence, negligent misrepresentation, breach of fiduciary duty and similar claims, according to the Finra arbitration award, which was issued on March 31.
UBS allegedly “presented the Yield Enhancement Strategy, or YES, as low-risk when the complexity and nature of YES actually exposed claimants to significant risk of loss,” according to the summary of the claim in the award.
UBS was ordered to pay $342,000 in compensatory damages and $29,000 in costs, including for expert witness fees. The investors had sued UBS for $433,000 in compensatory damages as well as $1.2 million in punitive damages and $402,500 in out-of-pocket losses, so the final award was far less than what the investors were seeking.
The clients’ financial adviser was not named in the matter.
UBS has been hit with a rash of investor claims over investment strategies that investors claimed had damaged them, and most recently saw a wave of investor complaints over Puerto Rico bonds and bond funds.
It remains to be seen if a surge in investor lawsuits stemming from the so-called YES options strategy will rise.
YES, whose holdings peaked around $6 billion in mid-2018, effectively borrows against clients’ holdings at UBS and uses the proceeds to trade options, according to a report in the Wall Street Journal last year. The product is akin to a margin loan against existing holdings; losses could compel an investor to put in extra cash or securities.
A UBS spokesperson said the firm declined to comment.
As is typical in such investor claims, the arbitrators gave no reason for the award in the matter.
However, in a separate investor Finra claim also from March, the three-person arbitration panel noted that UBS' marketing materials for YES "clearly pointed out the high-risk nature of such an investment strategy along with the clear possibility that large investment losses were possible."
In that claim, the investors lost to UBS.
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