The Securities and Exchange Commission (SEC) has imposed a $25 million penalty on UBS Financial Services Inc. to settle fraud charges relating to a complex investment strategy Yield Enhancement Strategy (YES).
UBS sold YES to 600 investors through its platform of domestic financial advisors. This happened between February 2016 through February 2017. SEC’s filing stated that UBS did not provide its financial advisors with adequate training and oversight in the strategy. Further, UBS recognized and documented the possibility of significant risk in YES investments, however it failed to share this data with advisors or clients.
According to SEC, some of the financial advisors using YES did not understand the risks and were unsure whether the advice they provided was in the best interest of their clients. Some investors suffered losses and many of them, along with their financial advisors, expressed surprise and closed their YES accounts.
Osman Nawaz, Chief of the Division of Enforcement’s Complex Financial Instruments Unit
Advisory firms are obligated to implement appropriate policies and procedures to ensure all parties involved in the sale of complex financial products and strategies have a clear understanding of the risks those products present. As fiduciaries, advisers also must make suitable recommendations to their clients. Complex products can present unique risks, and the SEC will remain vigilant and continue to take action to protect those who invest in these products from misconduct.
UBS consented to the entry of SEC’s filing and without admitting or denying the allegations, the company agreed to a cease-and-desist order, a censure, and to pay the $25 million monetary penalty.
SEC recently slapped Ernst & Young with a $100 million fine for for cheating on exams by its audit professionals, the the largest penalty ever imposed by the regulator against an audit firm.
