A three-person Finra arbitration last week hammered UBS Financial Services Inc. when it awarded $92.2 million in damages to a group of nine investors who alleged the firm engaged in a high-risk trading strategy linked to a financial advisor shorting shares of Tesla Inc.
And the panel found UBS Financial Services liable for $69.1 million, or 75 percent the total, in punitive damage to the claimants: Dennis, Leslie, Tyler and Noelle Hansen; Bradley and Jordan Nelson; Lindsey and Nicholas Valentini; and Mark Kramer. Punitive damages indicate that a Finra panel wants to punish the defendants for conduct and behavior.
The hearing was held in Des Moines, and the Finra panel cited Iowa state codes in its award of punitive damages, according to the award, which was published Friday on Finra's website.
UBS has a history of costly litigation stemming from the sale of volatile investment products, from its YES options strategy to Puerto Rico bonds and bond funds to Lehman Brothers structured notes.
“This award signals significant supervisory issues at UBS,” said Ryan Bakhtiari, a plaintiff’s attorney who was not involved in the claim. “Any time there are damages of multi-million dollar range, you must start looking beyond the financial advisor to what management knew and when they knew it.”
“The Finra panel is sending the message to UBS management that something was not right here and they have to do a better job,” Bakhtiari added. “It’s an extremely troubling award.”
A UBS spokesperson on Monday said the firm disagreed with the decision made by the panel of three arbitrators, who operated under the aegis of Finra Dispute Resolution.
“These experienced investors had been pursuing an aggressive shorting strategy profitably for years and complained only after they took losses,” the UBS spokesperson said. “We intend to seek judicial review of the award on the basis, among other grounds, that the punitive damages were inconsistent with the facts and the law.”
The UBS clients’ claim against the firm and a veteran financial advisor, Andrew D. Burish, was filed in 2021. Burish is based in Madison, Wisconsin, and has worked at UBS and predecessors since 1984, according to his BrokerCheck profile.
Burish is liable for $5 million in damages.
The UBS clients alleged that from September 2019 to July 2020 Burish “recommended an unsuitable and risky strategy of selling the stock of Tesla short and recommended that they continue to hold the positions in the face of mounting losses,” according to the advisor’s BrokerCheck profile.
The clients’ later added a fraud claim to their lawsuit, “alleging that [Burish] failed to advise them that he was no longer shorting Tesla in his own account from July 2019 to June 2020,” according to BrokerCheck.
Burish “adamantly” denied those allegations, according to BrokerCheck. “Claimants made these well-informed decisions independent of any alleged reliance on the financial advisor’s personal trading activities,” a statement on BrokerCheck read.
According to the arbitration award, UBS is liable for $23.1 million in compensatory damages to its customers, while Burish is liable for $4.5 million in such damages. Burish was ordered to pay $500,000 in punitive damages, according to the award.
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