TAG | UBS Financial Services Inc
Comments off · Posted by Securities Lawyer in FINRA
This past Tuesday, May 1st., FINRA, the Financial Industry Regulatory Authority, Inc. fined four major brokerages $9.1 million for selling complex ETFs (Exchange Traded Funds) to investors whose portfolios were otherwise conservative.
Without admitting or denying the charges, the brokerges will be paying $7.3 million in fines, and $1.8 million in restitution to the clients who bought inverse and leveraged ETFs. Those brokerages are: Citigroup Global Markets Inc, Morgan Stanley & Co., LLC, Wells Fargo Advisors, LLC, and UBS Financial Services.
The chairman of the Senate Banking Subcommitte on Securities, Insurance, and Investment, Sen. Jack Reed, D-RI, announced that he will follow up on the hearing he held last October on ETFs with another hearing in the next few weeks.
“My hearing last fall shined a light on these products, which may be affecting market structure, volatility and price discovery and has the potential to harm investors,” Sen. Reed said. “I think this market deserves more attention from both domestic and foreign regulators, and I plan to hold another hearing on ETFs and related issues in the near future.”
Finra felt he brokerages it disciplined had failed to educate their reps about the complexities – and dangers – of leveraged and inverse ETFs, which hold derivatives and magnify market movements. The brokers then sold them to uninformed investors.
“The added complexity of leveraged and inverse exchange-traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficientily train their sales force before the products are offered to retail customers,” Brad Bennett, Finra executive vice president and chief of enforcement, said in a statement. “Firms must conduct reasonable due diligence and ensure that their representatives have an understanding of these products.”
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Comments off · Posted by Securities Lawyer in FINRA
The Securities and Exchange Commission (SEC) announced on May 1, 2012, that they charged UBS Financial Services Inc. of Puerto Rico and two executives with making misleading statements to investors, concealing a liquidity crisis, and masking its control of the secondary market for 23 proprietary closed-end mutual funds.
UBS Puerto Rico will settle the SEC’s charges by paying $26.6 million that will be placed into a fund for the “harmed investors.”
According to the SEC, UBS Puerto Rico misled its investors and failed to disclose that it controlled the secondary market, where investors could sell their shares in the funds. UBS Puerto Rico significantly increased its inventory holdings in the closed-end funds in order to prop up market prices, bolster liquidity, and promote the appearance of a stable market. However, UBS Puerto Rico later withdrew its market price and liquidity support in order to sell 75 percent of its closed-end fund inventory to unsuspecting investors.
UBS Puerto Rico’s vice chairman and former CEO Miguel A. Ferrer and its head of capital markets Carlos J. Ortiz, have SEC proceedings against them which they are contesting.
“UBS Puerto Rico denied its closed-end fund customers what they were entitled to under the law – accurate price and liquidity information, and a trading desk that did not advantage UBS’s trades over those of its customers,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
Eric I. Bustillo, Director of the SEC’s Miami Regional Office, added, “We will aggressively prosecute firms that use conflicts of interest for their own financial gain.”
The SEC’s order states that beginning in 2008, UBS Puerto Rico solicited thousands of retail investors by promoting the closed-end funds’ market performance and continuously high premiums to net asset value (up to 45 percent) as the result of supply and demand in a competitive and liquid secondary market. However, when investor demand began to decline, UBS Puerto Rico sought to maintain the illusion of a liquid market by buying shares into its own inventory from customers who wished to exit the market. Throughout a falling market, UBS Puerto Rico continued to sell shares by conducting primary offerings in order to grow its closed-end fund business. UBS Puerto Rico failed to disclose the true state of the market to investors.
According to the SEC’s order, they state on their website that UBS Puerto Rico’s parent firm determined in the spring of 2009 that UBS Puerto Rico’s growing closed-end fund inventory represented a financial risk, and directed the firm to reduce its inventory by 75 percent to reduce that risk and “promote more rational pricing and more clarity to clients . . . [so] prices transparently develop based on supply and demand.” To accomplish the reduction, UBS Puerto Rico executed a plan dubbed “Objective: Soft Landing” in one document, which included:
- Undercutting numerous marketable customer sell orders to “eliminate” those orders and liquidate UBS Puerto Rico’s inventory first, preventing customers from selling their shares.
- Not disclosing that UBS Puerto Rico was drastically reducing its inventory purchases.
- Soliciting customers to sell recently purchased primary offering shares back to the closed-end fund companies, so UBS Puerto Rico could then sell closed-end funds to those customers from its highest inventory positions.
Additionally, UBS Puerto Rico increased solicitation efforts to further reduce its inventory while making misrepresentations and failing to disclose UBS Puerto Rico’s withdrawal of secondary market support.
According to the SEC’s website, UBS Puerto Rico agreed to settle the SEC’s charges, without admitting or denying the findings, that it violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The order requires UBS Puerto Rico to pay $11.5 million in disgorgement, $1.1 million in prejudgment interest, and a penalty of $14 million. In addition to the monetary relief, the SEC’s order censures UBS Puerto Rico, directs it to cease-and-desist from committing or causing any further violations of the provisions charged, and orders the firm to comply with its undertaking to retain an independent consultant at UBS Puerto Rico’s expense.
Also the SEC article states that the independent consultant will review the adequacy of UBS Puerto Rico’s closed-end fund disclosures and trading and pricing policies, procedures, and practices. UBS Puerto Rico shall abide by the determinations of the consultant and adopt and implement all recommendations.
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations of UBS Puerto Rico, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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