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Category Archives: UBS

UBS V10 Currency Structured Notes Under Investigation by U.S. Justice Department

The U.S. Justice Department is looking into the UBS V10 Enhanced FX Carry Strategy, a product sold to investors such as hedge funds and pension funds. Focusing on whether banks misrepresented how currency transactions were priced, authorities’ broaden their examination into manipulation in the foreign-exchange market.

The V10 product “allows an investor to potentially profit in moves in 10 of the most liquid major currencies by taking advantage of opportunities based on interest rate differentials,” according to a 2009 UBS publication.

Through interviews with UBS employees in 2013, the V10 product first arose in the Justice Department with investigators probing commissions on the product and whether the bank respected its fiduciary duties to clients. In recent weeks, the questions were raised once again as the agency pursued to secure proffer agreements.

For more information visit: http://www.bloomberg.com/news/articles/2015-02-08/ubs-currency-product-sales-targeted-by-u-s-justice-department

The Big Stories of 2013

The top stories in the investment world for 2013 ran the gamut, from non-traded REIT deals that soured to a stampede of broker/dealers closing up shop. Among the highlights in 2013:

Non-Traded Real Estate Investment Trusts (REITs). In June, William Galvin, Secretary of the Commonwealth of Massachusetts, announced settlements with Ameriprise Financial Services Inc., Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates and Securities America over sales involving non-traded REITs.  As part of the settlement, the five firms agreed to make $6.1 million in restitution to investors and pay fines totaling $975,000.

LPL Financial. In February, LPL Financial LLC was order by the Massachusetts Security Division to pay restitution of more than $2 million to investors who bought shares of non-traded real estate investment trusts (REITs). In addition to the restitution order, Massachusetts regulators levied a $500,000 administrative fine against LPL.  The settlement stemmed to allegations that LPL failed to supervise brokers who sold investments in non-traded REITs. LPL also agreed to review all other non-traded REITs offered to Massachusetts residents and to make restitution to investors in the state whose transactions violated Massachusetts or company rules.

Separately, a former adviser affiliated with LPL Financial LLC was charged in May by the Securities and Exchange Commission (SEC) of defrauding investors and stealing $2 million from at least six clients. According to the civil complaint, the adviser, Blake Richards, misappropriated client money that “constituted retirement savings and/or life insurance proceeds from deceased spouses.”

In one instance, Richards allegedly tried to gain an investor’s trust by delivering pain medication during a snowstorm to a client’s husband who had been diagnosed with terminal pancreatic cancer, according to the SEC complaint.

Private Placements.  Four culprits behind a massive multimillion-dollar private-placement fraud known as Provident Royalties were given jail sentences by U.S. District Judge Marcia A. Crone. Brendan Coughlin, 46, and Henry Harrison, 47, were sentenced to 21 months in federal prison. They founded and controlled Provident along with Joseph Blimline, 35, who already had been sentenced to 12 years in prison. Paul Melbye received a sentence of 18 months in prison.

Columbia Property Trust. Non-traded REITs again made headlines when Columbia Property Trust went public in October at $22.50 a share. Before going public, however, the REIT underwent a complicated reverse 4-for-1 share split, raising its price to around $29 a share from just over $7.33. Investors who initially bought into the REIT at $10 a share essentially were offered the opportunity to cash out at a net asset value of around 45% less than the price they paid at their initial purchase.

Making matters worse is the fact that Columbia Property Trust had cut its distributions twice since 2009.

Bambi Holzer. Known as the broker to the stars, Bambi Holzer made a name for herself in the securities industry by providing financial advice to Hollywood names like Julia Louis-Dreyfus (who ultimately sued Holzer over a dispute concerning $4.4 million invested in annuities). In October 2013, the Financial Industry Regulatory Authority (FINRA) also sued Holzer for allegedly lying to one of her former firms, Wedbush Securities, about the net worth of several clients when she sold preferred shares of one of the series of fraudulent deals issued by Provident Royalties LLC in 2008.

In December 2013, Holzer was officially barred from the securities industry as part of a settlement with FINRA.

Elder Fraud. Elder financial fraud and abuse came to the forefront of the big investment stories in 2013 as several research studies reported that the elderly were losing more than $3 billion every year to financial fraud and investment scams. Many of the scams involved unsuitable investments, variable annuities and alternative financial products like non-traded REITs and private placements.

Protecting investors – and especially the elderly – was in part behind a move by the Securities and Exchange Commission (SEC) to release a special bulletin warning investors about the myriad of financial titles in existence today. Among other things, the bulletin stressed that financial professional designations and licenses are not the same and that investors should never rely solely on a title to determine whether a financial professional has the expertise they need.

UBS Puerto Rico Bonds. In November, a unit of UBS AG offered to repurchase shares of closed-end municipal bond funds invested in Puerto Rico muni securities from certain clients. During the summer, the market for Puerto Rico’s $70 billion muni debt went south after Detroit filed for bankruptcy in July. UBS Financial Services of Puerto Rico is a huge player in the muni debt market in Puerto Rico, packaging and selling $10 billion in proprietary closed-end bond funds through the end of 2012. Meanwhile, the net asset value (NAV) of the 14 UBS closed-end funds have plummeted.

Investors purchased the proprietary bond funds for $10 a share. According to a story by Investment News, the NAV for the $375 million Puerto Rico Fixed Income Fund was $3.63 at the end of October, down 85% since the end of June. The NAV for the $449 million Puerto Rico Fixed Income Fund III was $4.08 at the end of October, a decrease in value of 68% since June.

Investors Begin Filing Claims Against UBS Puerto Rico Brokers

Legal problems tied to UBS Financial Services of Puerto Rico and, specifically, to sales of a group of troubled closed-end municipal bond funds, are big and getting bigger. Now, investors who suffered financial losses from the investments are taking action against the UBS brokers who sold them the products.

The market for Puerto Rico’s $70 billion muni debt went south when the city of Detroit filed for Chapter 9 bankruptcy protection on July 18.  The bankruptcy filing made Detroit the largest city in U.S. history to do so. The UBS unit in Puerto Rico is a major player in the muni-debt market in Puerto Rico, packaging and selling $10 billion in proprietary closed-end bond funds as of the end of last year.

As reported earlier today by Investment News, disgruntled investors are filing arbitration claims with the Financial Industry Regulatory Authority (FINRA) against individual brokers at UBS Puerto Rico. One of those brokers, Jose Gabriel Ramirez Jr., has had seven investor complaints totaling nearly $51 million filed against him, according to his BrokerCheck report.

The seven complaints range from $1 million to $26 million in alleged damages. In each complaint, investors allege actions of overconcentration and misrepresentation of the closed-end funds by the UBS brokers.

According to the Investment News story, Ramirez currently is on administrative leave from UBS Puerto Rico.

The value of the closed-end bond funds at the focus of investors’ claims with FINRA plummeted by 50% to 60% during the second half of this year.

Lending Practices of UBS Brokers in Puerto Rico Called Into Question

Swiss banking giant UBS has had its share of spotlight moments in recent years – and many have been anything but positive. Last year, the firm agreed to pay $1.5 billion to settle claims that UBS traders and managers had manipulated global benchmark interest rates. The bank also paid nearly $27 million in 2013 to settle accusations by the Securities and Exchange Commission (SEC) that it and two of its executives in Puerto Rico had made misleading statements to investors that the SEC said concealed a liquidity crisis in UBS funds.

Another blight on UBS’ record concerned former UBS trader Kweku M. Adoboli, who was sentenced in 2013 to seven years in jail after having been found guilty of fraud that subsequently led to a multibillion-dollar trading loss at UBS.

Now there appears to be more trouble brewing for UBS. This time it has to do with the bank’s business in Puerto Rico. Puerto Rico has long been a haven for the wealthy because residents do not pay federal income taxes. A number of big investment banks do business in Puerto Rico, but UBS is one of only a handful with a substantial team of brokers on the island. As reported in a recent story by Susanne Craig in the New York Times, UBS maintains five branches in Puerto Rico, with 132 brokers who manage money – roughly $10 billion – for the island’s wealthy investors.

In many instances, UBS put this money into mutual funds that the bank itself managed. Such a practice can be lucrative business as both the broker and the bank receive a commission on each sale, with the bank taking in a fee for managing the fund.

Because of recent economic woes in Puerto Rico, UBS customers have seen the value of their holdings fall dramatically. Many of these investors had bought heavily into highly leveraged bond funds run by UBS and were encouraged by its brokers to borrow even more money to invest in those funds, according to the New York Times story. In some cases, “money was lent improperly, exacerbating current losses, according to UBS employees in the region close to the situation, who spoke on the condition that they not be named because of a company policy against speaking to the news media.”

Now, a number of UBS clients have been forced to liquidate hundreds of millions of dollars in holdings in these funds in order to meet margin calls. UBS, meanwhile, says it has launched an internal investigation regarding the lending practices of some of its brokers in Puerto Rico.

One UBS broker reportedly already has been placed on administrative leave after recent claims came to light he had encouraged his clients to buy securities on lines of credit, which is in violation of the bank’s policy.

As reported in the New York Times story, UBS’ funds had once enjoyed strong returns for years and paid healthy dividends. The Tax Free Puerto Rico Fund II (total assets: $357 million) has a five-year return of 6.8 percent, according to UBS documents.

But in the face of Puerto Rico’s continuing economic downturn, UBS customers have seen the value of their holdings fall. The fund’s shares don’t trade on an exchange, but UBS documents show it had a per-share value of $6.16 in early September, down from $7.75 a share at the end of June. Brokers in the region say the fund’s value has fallen even further in recent weeks, according to the New York Times.

The funds that UBS manages are highly leveraged. According to the New York Times, the Tax Free Puerto Rico Fund II has a leverage ratio of 53%. That means for every dollar of a customer’s assets it holds, it has roughly another dollar of assets bought with borrowed money. UBS’s other Puerto Rico funds are similarly leveraged, according to firm documents.

By comparison, the average leverage ratio on funds similar to UBS’ in the United States is roughly 22%, according to Morningstar.

The New York Times story points out that UBS’ troubles on the island have been exacerbated by the fact that many clients took out margin loans to buy into the funds. (UBS brokers who encouraged the use of credit lines had good reason to do so; they receive commissions for securities bought on the credit lines and make additional money if the customer uses the credit line.)

The New York Times story goes on to report that according to local brokers and a lawyer representing some UBS clients who may sue UBS, some investors were encouraged by their brokers to borrow on credit lines.

You can read the entire New York Times story here.

Investor Wins In UBS, Lehman Principal-Protected Notes Case

A $2.2 million arbitration award is the latest win for investors in cases involving UBS and Lehman Brothers Principal-Protected Notes. The award, which was announced in December by a three-person arbitration panel of the Financial Industry Regulatory Authority (FINRA), is the seventh consecutive win for investors with pending complaints against UBS over the Lehman Brothers notes.

The focus of investors’ complaints centers on the failure of the 100% principal-protected notes touted by UBS to live up to their hype. Instead of the safety and security of fixed- income investments, the notes were actually complex products comprised of risky derivatives.

What UBS and other brokerages failed to emphasize to investors was the fact that the notes were unsecured obligations of Lehman Brothers. When Lehman filed for bankruptcy on Sept. 15, holders of the notes were left with investments that traded for pennies on the dollar.

UBS sold $1 billion of Lehman Principal-Protected Notes to investors. Commissions on the notes were 1.75%, a far higher percentage than what could be generated from sales of certificates of deposit.

If you’ve suffered financial losses in Lehman Principal-Protected Notes and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, please contact us.

FINRA Rules In Favor Of Investor In Lehman Principal Protected Notes Case

UBS AG faces dozens of arbitration claims from U.S. clients who bought 100 percent principal protected notes issued by Lehman Brothers Holdings that turned out to be virtually worthless after the company filed for bankruptcy in September. Now, in one of the first cases to be heard by the Financial Industry Regulatory Authority (FINRA), an arbitration panel has awarded an investor $200,000, ruling that her UBS broker inappropriately sold her the risky investments.

As reported Dec. 5 by the Wall Street Journal, the case serves as one of the first that FINRA has ruled upon concerning Lehman principal protected notes and could be a sign of how future cases may unfold.

Steven Caruso, an attorney with Maddox Hargett & Caruso, said in the article that hundreds or thousands of additional arbitration cases are expected to be filed in connection with Lehman principal protected notes. Caruso’s firm alone will represent roughly 100, according to the Wall Street Journal.

Lehman principal protected notes were structured notes that many banks and securities firms represented as low-risk investments. What they failed to emphasize to investors was the fact that the notes were unsecured obligations of Lehman Brothers. When Lehman filed for bankruptcy on Sept. 15, holders of the notes found themselves with investments that traded for pennies on the dollar.

If you have suffered losses in Lehman principal protected notes and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, please contact us.

It’s A Waiting Game For ARS Clients Of Raymond James Financial

Citigroup did it, followed by Morgan Stanley, UBS, Merrill Lynch, Wachovia, Bank of America (BofA) and, most recently, Morgan Keegan and Ameritrade. The “it” concerns settlement agreements with the Securities and Exchange Commission (SEC) to repurchase billions of dollars worth of auction-rate securities from retail investors. Scores of Wall Street firms agreed to the deals with regulators, with only a few holdouts. One of those holdouts: Raymond James Financial. 

Raymond James Financial is the subject of Gretchen Morgenson’s Aug. 1 column in the New York Times. In the article, she writes that clients of the Tampa-based brokerage currently hold some $800 million of illiquid auction-rate securities, down from $1 billion earlier this year.

The decline is tied to redemptions by issuers of auction-rate securities, such as closed-end funds and municipalities. So far, Raymond James has shown no interest in redeeming customers’ holdings. Its reasoning? Buying back $800 million of auction-rate securities at par is equal to more than 4% of the company’s total assets and 42% of its shareholder equity. 

On the other hand, Raymond James apparently had the financial stability last year, at the height of the credit crisis, to raise its dividend 10%. The move proved especially beneficial for Thomas James, CEO of Raymond James Financial. James owns 12.2% the company shares outstanding. Dividends on those shares generated a handsome profit totaling about $6 million for James and another total another $6.5 million this year if the company continues to pay the current rate of 44 cents a share.

The payments are in addition to James’ salary and pay package, which is valued at $3.55 million, according to the New York Times story.

Then there’s the money Raymond James came up with to fund its corporate branding campaign. In 2008 and 2009, the company spent $6.3 million to acquire the naming rights to the stadium where the Tampa Bay Buccaneers play. The contract runs until 2016, and the costs rise 4% every year.

Meanwhile, as the “financially strapped” Raymond James funds million-dollar salaries, raises its dividend and outlays millions of dollars on corporate advertising and marketing efforts, its clients remain permanently caught in an auction-rate securities nightmare.  

Morgan Stanley, Former Investment Advisor Charged With Misrepresentation

In an agreement with the Securities and Exchange Commission (SEC), Morgan Stanley will pay a $500,000 penalty to settle charges that it misled customers in its Nashville office about various money management firms recommended to clients and from which Morgan Stanley later profited via large commissions. 

Contrary to its disclosures and corporate policies, Morgan Stanley recommended some money managers who were not approved for participation in the firm’s advisory programs and therefore had not been subject to the firm’s due diligence review.

The SEC also charged William Keith Phillips, a former Morgan Stanley investment advisor in Nashville, of steering investors to the unapproved money managers so that he could receive financial kickbacks. The SEC says Phillips’ use of unapproved money managers earned Morgan Stanley at least $3.3 million in extra commissions.

The SEC’s case with Phillips is still pending. 

This isn’t the first time complaints have been lodged against Phillips. As reported July 21 in The Tennessean, Phillips apparently has a lengthy history of previous misconduct accusations, including those from the Chattanooga Pension Fund, the Nashville Electric Service and Metro Nashville Pension Plan. In 2004, the Chattanooga Pension Fund accused him of costing the fund $20 million in losses, undisclosed commissions and fees.

Ultimately, UBS Financial Services, which acquired Phillips’ employer PaineWebber, paid $675,000 to settle the case in 2006, according to the Financial Industry Regulatory Authority (FINRA), according to the article. A much larger payout was made by the Swiss-based bank in 2002 after Metro Nashville complained about the way in which Phillips handled its pension.

UBS paid more than $10 million to settle those issues. UBS also settled with the Nashville Electric Service, agreeing to pay $440,000 for similar accusations levied against Phillips.

UBS Problems Spur Management Upheaval

The subprime mess and allegations of tax evasion schemes are just some of the issues responsible for tarnishing the reputation of UBS AG. For months now, a string of crises has fueled speculation about the fiscal health of the Swiss-based investment firm. In the last year, the company saw its stock price fall some 85%, experienced $18 billion in losses and cut thousands of jobs.

Last month, the U.S. government sued UBS in an attempt to force the bank to reveal the identities of up to 52,000 American clients who allegedly hid secret Swiss accounts from U.S. tax authorities. Prior to the lawsuit, UBS struck a deal with U.S. prosecutors on Feb. 18 by agreeing to pay $780 million and provide the names of up to 300 individuals who may have avoided paying taxes by stashing money in Switzerland.

Fallout from tax evasion scandal has led UBS to clear out its top management. On Feb. 26, the company appointed Oswald Gruebel, who engineered the turnaround at competitor bank Credit Suisse, as its new chief executive. Gruebel replaced Marcel Rohner, who had been on the job as CEO at UBS for only 18 months.

On March 3, UBS announced that Kaspar Villiger would replace Peter Kurer as chairman of its board of directors.

Since the beginning of the subprime meltdown, UBS has amassed more than $50 billion in writedowns and losses, forcing the firm to reduce its workforce by 11,000 jobs.


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