UBS Advisory Firms To Pay Investors $13M For Failure to Disclose Closed-End Fund Strategy Modification

UBS Fund Advisor LLC and UBS Willow Management LLC will pay $17.5M, including $13 million to investors that were hurt to resolve Securities and Exchange Commission charges accusing them of failing to disclose that there was a change in an investment strategy involving closed-end fund UBS Willow Fund LLC. The two UBS (UBS) advisory firms have advised the fund.

The SEC contends that from 2000 through 2008, UBS Willow Management – which was a joint venture between an outside portfolio manager and UBS Fund Advisor – invested the assets of the Willow Fund in line with the strategy discussed in marketing collateral and offering documents. However, according to the regulator’s order that instituted a settled administrative proceeding, in 2008, the fund advisor changed tactics and went from focusing on investments in debt put out by beleaguered companies to buying big amounts of credit default swaps.

The Willow fund started to sustain huge losses because of the credit default swaps, which went from 2.6% of the fund’s market value in ’08 to over 25% by March ’09. The fund was eventually liquidated three years later.

The SEC says that UBS Willow Management failed to notify its board of directors or the fund’s investors that the investment strategy had changed. For a time, a marketing brochure given to prospective investors misstated the strategy of the fund, and letters to investors included misleading or false information about credit default swap exposure.

The regulator believes that in shareholder reports that were submitted to the SEC over several years, UBS Willow Management compelled the fund to misrepresent its strategy for investing. It claims that UBS Fund Advisor, which held final control of the fund, knew about the strategy change but did not properly supervise UBS Willow Management. This inadequate supervision allowed for the strategy change to happen without proper disclosure.

Both UBS advisors are settling without denying or admitting the SEC’s findings. The $17.5M includes $8.2M in advisory fee disgorgement, $1.4M in pre-judgment interest, $4.9M in investor compensation, and a $3 million penalty. $13 million of compensation and disgorgement will be issued to investors that sustained financial harm.

Our closed-end fund fraud lawyers are here to help investors recoup their investment in the Willow Fund or other investments. Contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation to discuss your situation.

Read the SEC Order (PDF)