UBS Financial Services Inc. lost a $3.86 million legal claim last week to clients who invested in an options strategy that was marketed internally at the firm as the Yield Enhancement Strategy.
It was the 28th such investor arbitration claim heard by a panel under the aegis of the Financial Industry Regulatory Authority Inc. UBS has won 15, meaning investors received no money, and the claimants, or customers, have won 13, according to an industry executive who asked not to be named.
The UBS customers in the most recent YES case were John and Elise Oren, who alleged negligence, negligent supervision, breach of fiduciary duty and similar claims, according to the Finra arbitration award, which was issued last Thursday.
The causes of action related to the clients' allegation that UBS "recommended a highly speculative managed account options strategy product, the Yield Enhancement Strategy, which was unsuitable and inappropriate for Claimants’ risk tolerances and investment objectives," according to the summary of the claim in the award.
UBS was ordered to pay $2.9 million in compensatory damages and $966,000 in attorneys' fees. The investors had sued UBS for up to $5 million in damages.
The clients’ financial adviser was not named in the matter.
A UBS spokesperson declined to comment.
UBS has been hit with a rash of investor claims over investment strategies that investors claimed had damaged them; most recently, it saw a wave of investor complaints over Puerto Rico bonds and bond funds.
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.
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