UBS Financial Services Inc. last week lost a $1.2 million lawsuit to a client linked to the firm’s handling of variable annuities and margin loans, according to the three-person arbitration panel award from Thursday.
A UBS spokesperson this morning declined to comment on the arbitration award, which was issued under the aegis of FINRA Dispute Resolution Services, the securities industry’s forum for customer complaints against brokerage firms.
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.
A UBS client, Kelly Goldsmith, in 2023 filed the complaint against UBS, alleging breach of fiduciary duty, negligence and other claims.
The investor’s complaint against the firm was related “to the purchase of a variable annuity with [Goldsmith’s] retirement funds and the use of margin in [her] account,” according to the award.
Bruce Oakes, Goldsmith’s attorney, did not return a call to comment. Goldsmith in her original complaint sought $2 million in compensatory damages.
In the end, the arbitration panel decided UBS was liable for $1.18 million in compensatory damages and $36,000 in costs.
Brokerage firms typically get into trouble regarding variable annuities when advisors rewrite customers’ annuity contracts to generate commissions, known as variable annuity switching.
Industry executives and attorneys have recently noted that variable annuities sales have grown in the rising interest rate environment, and that could lead to clients being switched out of annuities when it‘s in the broker's interest and not the investor's.
Annuity switching generates fresh commissions for the advisor, and surrender charges and fees for the clients.
This case, however, does not appear to be an example of switching but a customer borrowing money from the firm on margin, a common practice in the securities industry.
UBS has recently been on the hook for liabilities and damages in FINRA arbitration cases.
This winter, the firm lost a $5.5 million lawsuit to a client and veteran real estate broker linked to the firm’s handling of shares and options of real estate brokerage Compass Inc. around the time of its initial public offering in 2021.
The client, Kyle Blackmon, was a real estate broker with Compass and was seeking $19.7 million in damages.
And UBS at the end of last month was denied its motion to vacate a $92 million arbitration claim it lost last year to clients, closing the firm’s efforts to not pay damages for an industry arbitration award which it deemed unfair.
A group of nine investors in February 2025 were awarded $92.2 million in damages after alleging UBS engaged in a high-risk trading strategy linked to a financial advisor shorting shares of Tesla Inc. (Ticker: TSLA).
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