The New York Attorney General’s Office is suing UBS Financial Services, Inc. for defrauding thousands of its customers. The lawsuit provides detailed information about a scheme where UBS moved clients from regular brokerage accounts to UBS’s “InsightOne” brokerage program, even though these investors were actually not well-suited for the program. UBS is a leading brokerage firm in the United States.
With InsightOne, brokerage customers had to pay an asset-based fee instead of a per-transaction commission. Asset-based fees, however, are not appropriate for investors who hardly ever trade securities or hold no-load mutual funds, a large amount of cash, or similar assets. UBS is being accused of falsely promoting InsightOne as being a brokerage program that offers personalized advice and other types of financial planning services.
Instead of discouraging investors who were inappropriate for InsightOne from joining the program, the N.Y. Attorney General’s Office says that UBS:
· Used false and misleading promises to persuade investors who were not right for InsightOne to join the program.
· Generated conflict of interest for its brokers who were encouraged to enroll and keep unsuitable investors in InsightOne. Financial incentives were offered for enrolling these investors.
· Encouraged UBS brokers to churn their clients’ InsightOne accounts in order to keep innapropriate investors in the program. This means that brokers were asked to take part in trading for the purposes of surpassing the minimum trading requirement.
The NY Attorney General’s Office has provided correspondence from USB brokers acknowledging that their actions were wrong and asking UBS to consider their mandates.
Because of UBS’s fraudulent behavior, investors who enrolled in InsightOne have had to pay tens of millions of dollars more in additional InsightOne fees than they would have had to pay in traditional brokerage account commissions, including:
· A 91-year old client paid UBS over $35,000 for just four trades over a two year period. That’s $33,000 more than she would have paid if she had a traditional brokerage account.
· One InsightOne client paid about $24,000 in fees for just one transaction in 2003.
· A retiree who had a yearly income of $11,000 and $56,000 in her InsightOne account had to pay a $1250 fee fin 2003 for trading just twice that year. That’s 10% more than her yearly income.
· An 83-year-old investor paid $4,300 per trade for four trades over a three year period. This amount was nearly 8% of her yearly income.
· A farming couple paid over $23,000 per trade for two trades over a three year period. This was $46,000 more than they would have paid if they had enrolled in a traditional account instead of InsightOne.
Filed in December 2006 in the New York Supreme Court in Manhattan, the Attorney General’s civil lawsuit is charging UBS with violating state anti-fraud laws, breaches of fiduciary duty, and common fraud law. They Attorney General’s complaint is seeking disgorgement, injunctive relief, damages, and restitution from UBS.
At Shepherd Smith Edwards & Kantas LTD LLP, it is our job to help investors who have lost their savings and retirement when their brokerage accounts were mishandled to recover their losses. Our attorneys and staff have more than 100 years of collective past experience in securities regulation and/or in the securities industry. We offer a free consultation to potential clients who contact us online. Send us an email today.
State Lawsuit Alleges Fraud In UBS Brokerage Accounts, NY Attorney General’s Office, December 12, 2006
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