As a financial analyst and legal expert with over a decade of experience, I’ve closely followed the regulatory issues facing major financial institutions like UBS Financial Services. The firm’s history offers important lessons for investors about the risks that can arise when proper oversight and compliance measures are lacking.
Unsuitable short-term trades of syndicate preferred stocks
December 19th, 2024: The Financial Industry Regulatory Authority recently censured and fined UBS Financial and ordered restitution for failing to maintain an adequate supervisory system to assess the suitability of short-term trades of syndicate preferred stocks recommended to retail customers from January 2017 to at least December 2018.
At least 22 UBS representatives engaged in a practice of recommending syndicate preferred stock purchases to retail customers, only to then sell those positions within 180 days. This allowed the representatives to collect concessions and commissions while the customers sustained losses. In just under two years, UBS-FS customers executed over 38,000 preferred stock trades valued at over $2 billion.
The crux of the issue was that representatives prioritized earning commissions by repeatedly engaging in short-term buying and selling, rather than acting in their customers’ best interests. This is a clear violation of FINRA Rules 3110 and 2010. As a result, UBS faced a $500,000 fine and had to pay restitution and disgorgement plus interest.
Failure to supervise private securities trades
July 8, 2024: In another failure of supervision, UBS was fined $850,000 by FINRA for inadequately monitoring a representative who directed clients to invest $7.2 million in unapproved, unregistered fixed annuities offered by his college friend’s company. Red flags about these third-party fund transfers went unaddressed for over a decade until a client tried to withdraw her investment in 2021. UBS ultimately repaid customers over $17 million.
Regulatory actions and arbitrations
UBS‘s record includes a staggering 915 disclosure events, encompassing 470 regulatory actions, 439 arbitrations, and 6 civil events. Sanctions from FINRA and the SEC range from censures and fines to suspensions and restitution orders. Meanwhile, arbitration awards often stem from unresolved customer disputes and complaints about misconduct. Together, these paint a troubling picture of the firm’s compliance and oversight.
As the famous investor Warren Buffett once said, “It takes 20 years to build a reputation and five minutes to ruin it.” UBS‘s extensive regulatory issues underscore the importance of this maxim. Financial institutions have an immense responsibility to properly supervise their representatives and protect their clients’ interests.
The human impact of regulatory failures
Behind the facts and figures of each regulatory action are real people whose financial well-being has been jeopardized. In March 2022, The White Law Group filed a FINRA arbitration claim on behalf of a Texas family against UBS and Credit Suisse, alleging fraud, breach of fiduciary duty, negligence, and negligent supervision related to unsuitable investments in high-risk royalty trust stocks. The claim sought $1-3 million in damages.
Just a few months later, in July 2022, the SEC charged UBS with fraud for its Yield Enhancement Strategy (YES) options trading program. UBS marketed and sold YES to about 600 investors without adequately training its financial advisors on the significant risks involved. This led to unsuitable recommendations and client losses. UBS agreed to pay $25 million to settle the charges.
Sadly, these stories are all too common. A fact that may shock many investors: 7.8% of financial advisors have a record of misconduct, according to a 2019 study by Mark Egan, Gregor Matvos, and Amit Seru. This underscores the vital importance of thoroughly vetting any advisor or firm before investing.
Protecting yourself as an investor
So what can you do to safeguard your investments? First and foremost, always research a broker’s background and regulatory history. Tools like FINRA‘s BrokerCheck allow you to review an individual’s qualifications and any past disciplinary actions. Don’t hesitate to ask questions and raise concerns.
If you believe you’ve been the victim of broker misconduct or investment fraud, don’t suffer in silence. Consult with an experienced securities attorney who can assess your case and advise you on potential legal remedies, such as filing a FINRA arbitration claim. While class action lawsuits may be appropriate in some situations, individual arbitration is often the most effective path for substantial losses.
The regulatory history of firms like UBS Financial Services offers a cautionary tale for investors. By staying informed, vigilant, and proactive, you can better protect your financial future. As a legal and financial professional, my goal is to shed light on these issues and empower investors to make sound decisions. Together, we can work towards a more transparent and accountable financial industry.
