September 23, 2011

UBS Trader Charged with Fraud Related to $2B Trading Loss

Kweku Adoboli, a UBS trader, has been charged with false accounting and fraud allegedly resulting in about $2 billion in losses. Adoboli, 31, was arrested in London.

The alleged financial misconduct is said to have taken place between 10/8 and 12/09 and 1/10 and 9/11 while Adoboli, who works out of UBS’s office in London, was a senior trader with UBS Global Synthetic Equities. FSA, which is Britain’s financial watchdog, and FINMA, which is Switzerland’s, have instigated an investigation into the loss. UBS will pay for the probe, which will be conducted by an independent third party.

UBS is also investigating this trading loss but says that no client positions have been impacted. The financial firm has said that most of the risk exposure went undetected because bogus hedging positions were placed in the bank’s systems.

Adoboli’s arrest for "suspicion of fraud by abuse of position” is bringing up questions about UBS’s risk management systems, which are supposed to prevent unauthorized trading. It was just in 2008 that UBS wrote down $50 billion in securities trades, leading to losses of 34.4 billion francs. That was the year that the Swiss Central Bank had to rescue UBS, which then closed down significant parts of its trading division and revised its risk-management systems.

News of Adoboli’s alleged fraud and the $2B loss has caused shares in UBS to drop, while the expense of insuring its 5-year bonds against default for a year became expanded by 15 basis points to 225 basis points. According to Reuters, analysts are saying that that this latest loss is the “final nail in the coffin” for UBS, which has had to deal with plunging markets, strict new regulation, and a Swiss franc that has gotten stronger.

Moody’s and Standard Poor’s now say that UBS’s credit rating is on negative watch. Meantime, Fitch says it has the financial firm’s viability rating on negative watch and that this latest incident only lends to the argument that UBS needs to downsize its investment banking unit.

The $2B loss and Adoboli’s arrest is unfortunate for UBS, which had just started to regain client confidence this year. This huge loss has pretty much cost the financial firm its first year of saving that was supposed to come from a cost-cutting plan involving the elimination of 3,500 jobs. UBS Chief Executive Oswald Gruebel and Chairman Carten Kengeter, who is the head of UBS’s investment bank division, are also now under fire. Gruebel has dismissed calls to step down.

UBS Raises Tally on Losses, Wall Street Journal, September 19, 2011

UBS trader charged with $2 billion fraud, Reuters, September 16, 2011


More Blog Posts:
Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors, Stockbroker Fraud Blog, July 13, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond, Institutional Investors Securities Blog, May 16, 2011

Continue reading "UBS Trader Charged with Fraud Related to $2B Trading Loss" »

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Posted In: Financial Firms , Fraudulent Trading , UBS

July 13, 2011

Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors

Steven T. Kobayashi has pleaded guilty to money laundering and wire fraud. The former UBS financial adviser is accused of bilking his private investment fund investors. As part of his plea agreement, he will pay $5,431,600 in restitution and serve a 65-month prison term.

Per the criminal charges, beginning in 2006 Kobayashi, who regularly made financial trades authorized by clients whose account he had access to, started transferring some of these funds into his own bank accounts without the investors’ “knowledge or authorization.” In some instances, clients gave their authorization because they were told the withdrawals were necessary to make investments. On other occasions, he forged their signatures on authorization forms.

Earlier this year, the ex-UBS adviser settled SEC securities fraud charges. The agency says that Kobayashi set up Life Settlement Partners LLC, which is a fund that invested in life settlement polices. He was able to raise millions of dollars for the fund from his UBS customers. However, he also started using the money to pay for prostitutes, expensive cars, and pay off gambling debts.

The SEC says that to try and pay back the fund and investors before they discovered his misconduct, he convinced several other UBS clients to liquidate securities and transfer to the proceeds to entities under his control. This allowed him to steal more money from the investors. Kobayashi settled the SEC charges without denying or admitting to them.

Related Web Resources:
Ex-UBS Adviser Pleads Guilty To Charges He Bilked Private Fund Investors, BNA Securities Law-Daily, June 10, 2011

Ex-UBS Advisor Faces Criminal Charges, in Life Settlement Case, On Wall Street, March 3, 2011

SEC CHARGES FORMER UBS FINANCIAL ADVISER WITH DEFRAUDING LIFE SETTLEMENT FUND INVESTORS, SEC.gov, March 3, 2011


More Blog Posts:
Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011

Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress
, Stockbroker Fraud Blog, August 8, 2010

AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investor Securities Blog, April 26, 2011

Continue reading " Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors" »

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Posted In: Life Settlements , Securities Fraud , UBS

January 28, 2011

Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme

Registered investment adviser Alexei Koval has pleaded guilty to three counts of securities fraud and one count of conspiracy to commit securities fraud over his role in a $1 million insider trading scheme. Koval, a registered investment adviser, allegedly acted on tips about provided by his friend Igor Poteroba, an ex-UBS Securities LLC investment banker, about the healthcare industry.

Koval admitted to U.S. District Judge Paul Crotty that he and Poteroba engaged in securities fraud between 2005 and February 2009. The two of them used coded email messages to communicate. Poteroba also provided the tips to a third person, Alexander Vorobiev.

Koval, who used to work for Citigroup Asset Management (C.N), Northern Trust Bank (NTRS.O), and Legg Mason Inc. (LM.N) subsidiary Western Asset Management, says he paid money for the insider information about upcoming announcements regarding acquisitions or mergers involving Molecular Devices Corp, Guilford Pharmaceuticals Inc, Via Cell Inc, PharmaNet Development Group Inc, Indevus Pharmaceuticals Inc., and Millennium Pharmaceuticals Inc.

As part of Koval’s plea deal, he will forfeit at least $1,414,290 in illegal proceeds. He is facing fines in the millions of dollars and up to 65 years in prison. Koval is also facing civil securities fraud charges with the US Securities and Exchange Commission.

Illegal Insider Trading
The SEC describes this type of illegal trading usually refers to the selling or buying of a security that involves a breach of fiduciary trust or duty while in possession of nonpublic, material information about the security. It can involve the “tipping” of such information to others, actual trading by the person who was “tipped,” and trading by those who were in possession of the insider information.

Related Web Resources:
UBS Banker Poteroba’s Co-Defendant Koval Pleads Guilty, Business Week, January 7, 2011

Securities and Exchange Commission v. Igor Poteroba, Aleksey Koval, Alexander Vorobiev, and Relief Defendants Tatiana Vorobieva and Anjali Walter, Civil Action No. 10-civ-2667 (AKH), SEC, November 4, 2011

Insider Trading, SEC

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Posted In: Financial Firms , Insider Trading , UBS

January 4, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses

A Financial Industry Regulatory Authority arbitration panel says that UBS Financial Services Inc. must pay $2.2 million to CNA Financial Corp. Chief Executive and Chairman Thomas F. Motamed for losses that he and his wife Christine B. Motamed sustained from investing in Lehman Brothers structured products. The Motameds, who filed their claim against the UBS AG (UBS, UBSN.VX) unit and ex-UBS brokers Judith Sierko and Robert Ashley early in 2009, are alleging misrepresentation, breach of fiduciary duty, and other charges.

This is the largest award involving UBS-sold Lehman structured products. However, the Motameds’ securities fraud case is just one of many against UBS over its sale of about $1 billion in Lehman-related structured investment products to US clients. Many of the claimants contend that the broker-dealer failed to properly represent the investments. As part of this arbitration case, UBS must also pay 6% yearly interest on the $2.2 million to the Motameds from April 4, 2008 until payment of the award is complete. The ruling is supposed to represent rescission of the Motameds’ structured products purchase.

UBS reportedly has not won even one case over the Lehman structured products where the claimant had legal representation. Just a few months ago, UBS AG was ordered to pay $529,688 to another couple over their Lehman structured notes purchase. Steven and Ellen Edelson bought the notes while under the impression that they were “principal protected” when in fact the securities did not have such protection.

The award is the largest involving Lehman structured products purchased through UBS, which has expressed disappointment over the panel’s ruling. The broker-dealer maintains that the losses sustained by the Motameds are a result of Lehman Brothers’s failure and not UBS’s handling of the products.

To Pay $2.2 Mln To CNA Chief for Lehman-Related Losses, The Wall Street Journal, December 23, 2010

UBS Must Pay Couple $530,000 for Lehman Brothers-Backed Structured Notes, Institutional Investors Securities Blog, November 5, 2010

Continue reading "UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses" »

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Posted In: Financial Firms , Lehman Brothers , UBS

September 9, 2010

Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers

UBS AG unit UBS Wealth Management Americas recently recruited Bank of America Corp.'s Merrill Lynch financial adviser Nina Hakim to join its Westfield, New Jersey office. Hakim, who reportedly managed $300 million in client assets and generated $1.5 million in commissions and fees, will now report to UBS branch Manager Erik Gaucher.

Another new addition to the UBS team is Morgan Stanley Smith Barney adviser Raymond Schmidtke, who will be based in Seattle, Washington. According to regulatory records, Schmidtke, was employed by Citigroup Inc. for over two decades and stayed at the MS joint venture for a year. He reportedly had close to $100 million in assets under management and $1 million in annual production. He now reports to UBS branch manager Shawn MacFarlan.

In other investment adviser news, a team of now former Wells Fargo Advisors advisers has joined Morgan Stanley Smith Barney. Francis Schiavetti and Ben Dembin’s base will be the Boca Raton, Florida office. The team reportedly manages $107 million in client assets and produces approximately $1.2 million in commissions and annual fees. The two men both were employed by Wells Fargo and predecessor firm Wachovia Securities before joining the Morgan Stanley Smith Barney team.

In August, the Financial Industry Regulatory Authority fined and censured Morgan Stanley $800,000 for not making public disclosures, which is required under the SRO’s rules that oversee research-analyst conflicts of interest. FINRA claims that the financial firm also did not comply with a key 2003 Research Analyst Settlement provision when it failed to disclose independent research availability in customer account statements. Every six months, for the next two years, Morgan Stanley must now review a sample of its research reports and certify that they are in compliance with FINRA’s rules.

Related Web Resources:
Hires Merrill Lynch, Morgan Stanley Brokers, Fox Business, August 24, 2010

Morgan Stanley Adds Team From Wells Fargo, Faces FINRA Fine, Investment Advisor, August 24, 2010

FINRA Fines Morgan Stanley $800,000 for Deficient Conflict of Interest Disclosures in Equity Research Reports and Public Appearances by Research Analysts, FINRA, August 10, 2010

Continue reading "Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers" »

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Posted In: Financial Firms , Merrill Lynch , Morgan Stanley , Smith Barney - Citigroup , UBS , Wells Fargo

August 10, 2010

UBS Ordered to Pay Auction-Rate Securities Investor Kajeet Inc. $81 Million

A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay investor Kajeet Inc. $80.8 million for failed auction-rate securities. The brokerage firm disagrees with the decision and intends to file a motion to have the claim vacated.

Although Kajeet had only invested $8 million in ARS through UBS, the company, which markets cell phones for kids, contends that because its securities were frozen, a “domino effect” resulted and it ultimately lost $110 million. Also, Kajeet was forced to significantly cut its 60-person work team and it lost a key distribution deal with a national retail chain.

UBS had previously resolved ARS-related charges with an agreement that it would pay a $150 million fine and buy back $18.6 billion of the securities. The brokerage firm was one of a number of broker-dealers that agreed to repurchase over $60 billion in ARS from investors because they had allegedly misrepresented the securities as safe investments. When the $330 million ARS market froze in February 2008, UBS had over $35 billion in ARS that were held by some 40,000 customers.

Our securities fraud lawyers continue fight for clients’ right to recover their losses from the ARS market collapse. We want to remind you of the special arbitration procedure that has been set up to allow clients with frozen ARS that couldn’t access their funds to claim “recovery of consequential damages.” The procedure does not allow investment firms to contest liability claims that are based on the argument that brokers issued misrepresentations when they caused investors to think that reselling the assets would be easy.

Related Web Resources:
UBS to Pay $81 Million in Auction-Rate Case, The Wall Street Journal, August 5, 2010

FINRA arbitrators order UBS to pay $81 million, Reuters, August 4, 2010

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Posted In: Arbitration , Auction-Rate Securities , FINRA , Financial Firms , Securities Fraud , UBS

April 27, 2010

UBS Agrees to Settle HealthSouth Corp Accounting Fraud Litigation for $217 M

UBS AG will pay $217 million to settle an accounting fraud lawsuit filed by HealthSouth Corp. bondholders and shareholders. Under the settlements, bondholders will receive $100 million and shareholders will get $117 million. UBS is HealthSouth’s investment bank. Meantime, Ernst & Young LLP, the. health-care services provider’s accounting firm, had settled with shareholders for $109 million and will now settle with bondholders for $33.5 million.

The settlements are a result of litigation filed over a $2.7 billion fraud at HealthSouth. The accounting scheme occurred between 1996 and 2002. After the fraud was discovered in March 2003, nearly $6 billion in market value was lost when the company’s share price dropped. 15 executives pleaded guilty over their involvement in the scam.

By agreeing to settle, UBS & Earnst & Young are not admitting to or denying wrongdoing. UBS maintains that HealthSouth lied to UBS bankers numerous times. In 2008, UBS consented to pay $100 million to HealthSouth over claims the investment bank failed to discover the fraud.

Shareholders also settled the accounting fraud with HealthSouth in 2006 for $355 million and received another $20 million from UBS in an Alabama court case. Meantime, bondholders received $90 million in their settlement with HealthSouth and $5 million from UBS in state court case. Bondholders and shareholders will also receive compensation from a $2.88 billion judgment against Richard Scrushy. HealthSouth’s founder was acquitted of criminal charges related to the fraud but in 2006 was convicted over a different bribery case.

Related Web Resources:
UBS to Pay $217 Million to Settle HealthSouth Case, BusinessWeek, April 23, 2010

UBS, Ernst Settle HealthSouth Cases for $250.5 Million, ABC News, April 24, 2010

Continue reading "UBS Agrees to Settle HealthSouth Corp Accounting Fraud Litigation for $217 M" »

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Posted In: Accounting Fraud , Financial Firms , UBS

March 31, 2010

UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam

Over two dozen bankers at Wall Street investment firms have been listed as co-conspirators in a bid-rigging scheme to pay lower than market interest rates to the federal and state governments over guaranteed investment contracts. The banks named as co-conspirators include JP Morgan Chase & Co, UBS AG, Lehman Brothers Holdings Inc., Bear Stearns Cos., Bank of America Corp, Societe General, Wachovia Corp (bought by Wells Fargo), former Citigroup Inc. unit Salomon Smith Barney, and two General Electric financial businesses.

The investment banks were named in papers filed by the lawyers of a former CDR Financial Products Inc. employee. The attorneys for the advisory firm say that they “inadvertedly” included the list of bankers and individuals and asked the court to strike the exhibit that contains the list. The firms and individuals on the co-conspirators list are not charged with any wrongdoing. However, over a dozen financial firms are contending with securities fraud complaints filed by municipalities claiming conspiracy was involved.

The government says that CDR, a local-government adviser, ran auctions that were scams. This let banks pay lower interests to the local governments. In October, CDR, and executives David Rubin, Evan Zarefsky, and Zevi Wolmark were indicted. They denied any wrongdoing. This year, three other former DCR employees pleaded guilty.

While the original indictments didn’t identify any investment contract sellers that took part in the alleged conspiracy, Providers A and B were accused of paying kickbacks to CDR after winning investment deals that the firm had brokered. The firms were able to do this by allegedly paying sham fees connected to financial transactions involving other companies.

Per the court documents filed in March, the kickbacks were paid out of fees that came out of transactions entered into with Royal Bank of Canada and UBS. The US Justice Department says the kickbacks ranged from $4,500 to $475,000. Financial Security Assurance Holdings Ltd divisions and GE units created the investment contracts that were involved.

Approximately $400 billion in municipal bonds are issued annually. Schools, cities, and states use money they get from the sale of these bonds to buy guaranteed investment contracts. Localities use the contracts to earn a return on some of the funds until they are needed for certain projects. The IRS, which sometimes makes money on the investments, requires that they are awarded on the basis of competitive bidding to make sure that the government gets a fair return.

Related Web Resources:
JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy, Business Week, March 26, 2010

U.S. Probe Lays Out Bid Fixing, Bond Buyer, March 29, 2010

Read the letter to District Judge Marrero (PDF)


Continue reading "UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam " »

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Posted In: Bank of America , Bear Stearns , Citigroup , Financial Firms , J P Morgan - Chase , Lehman Brothers , UBS , Wachovia , Wells Fargo

February 25, 2010

Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty

As part of a deal to settle ARS insider trading allegations by New York Attorney General Attorney Cuomo, former UBS AG executive David Shulman has agreed to pay $2.75 million. Shulman is accused of finding out through nonpublic, material information that the investment bank’s student loan auction rate securities program was in trouble and that there was a possibility that future auctions involving the student ARS would fail. Yet he allegedly violated New York securities regulations when he proceeded to sell more ARS.

On December 13, 2007, two days after finding out about the ARS risks, Shulman, who supervised the ARS trading desk, sold $1.45 million in personal holdings of student loan ARS to the desk. He was suspended in July 2008.

Shulman has not denied or admitted to the document’s findings. However, as part of the agreement with Cuomo, he is subject to a retroactive 30-month suspension from working as a registered broker-dealer.

In the wake of the ARS market collapse in February 2008 that left so many investors, who were misled into believing their investments were as liquid as cash, with frozen securities, Cuomo remains committed to investigating broker-dealers’ auction-rate securities marketing and sales practices. Many of the investment firms that sold the ARS did so despite allegedly knowing that the securities were in danger of failing.

Since August 2008, Cuomo has gotten 12 financial service firms to agree to repurchase $61 billion of ARS at par. As part of their securities fraud settlements, the broker-dealers are paying $597.3 million in penalties.

Related Web Resources:
Former UBS Muni Chief Settles Probe for $2.75 Million, BusinessWeek, February 18, 2010

Attorney General Cuomo Announces $2.75 Million Insider Trading Settlement with Former UBS Top Executive David Shulman, Office of the NY Attorney General, February 18, 2010

Continue reading "Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty" »

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Posted In: Auction-Rate Securities , Financial Firms , Insider Trading , UBS

February 13, 2010

Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading

David Slaine, a former manager for Chelsey Capital, has pleaded guilty to using UBS insider tips that allowed him to earn over $3 million for the hedge fund while he made more than $500,000 in illegal profits. The inside information was given to him by an ex-UBS Securities LLC executive.

According to the US Securities and Exchange Commission’s complaint, Slaine must still settle the SEC’s securities fraud allegations against him. The agency claims that Erik Franklin, a Chelsey Capital colleague, gave Slaine the tips. Franklin had received them from Mitchel S. Guttenberg, who worked in UBS’s equity research department as an executive editor.

The tips, which were UBS analysts’ equity securities recommendations, were supposed to be nonpublic. Slaine, however, used the information to trade in advance of the recommendations. In 2002, he made over 20 trades using that information.

SEC has settled related allegations against Guttenberg, Franklin, and five others. Guttenberg, who was convicted of insider trading, is serving 78 months in prison.

Slaine could be sentenced to up to 25 years behind bars. Although he pleaded guilty in December, this information was only made public this month. The former hedge fund manager has also been identified as a government cooperator in the Galleon hedge fund insider trading scheme.

Related Web Resources:
Ex-NY fund manager Slaine pleads guilty, Reuters, February 2, 2010

Ex-Galleon Trader Slaine Pleaded Guilty, Sued by SEC in Probe, BusinessWeek, February 3, 2010

Investor charged in Galleon insider trading case, TimesOnline, February 2, 2010

Continue reading "Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading" »

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Posted In: Financial Firms , Hedge Funds , Insider Trading , UBS

December 11, 2009

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.
• 53% of Wells Fargo Advisors (includes Wachovia Securities and AG Edwards) brokers said their place of work was #1.
• UBS received the least accolades from its workers, with just 1/3rd of its brokers ranking it as the best securities firm workplace.

However, UBS brokers were at the top of the heap for self-reported metrics. According to UBS advisers, they claim an average $101.2 million for assets under management and gross production of $696,032. Other firms:

• Merrill Lynch representatives: $655,250 average gross production; $97.1 million under management
• Morgan Stanley Smith Barney brokers: $84.9 million under management ; $619,961 in production
• Wells Fargo representatives: $80.2 million in client assets; $542,350 in production
• Edward Jones representatives: $364,258 in average production; $58.6 million in assets under management

Yet, as Shepherd Smith Edwards & Kantas, LLP founder and stockbroker fraud lawyer William Shepherd points out, “securities brokers at large firms with average production receive about 30% of their gross production in pay. Brokers at Edward Jones receive about half. Thus, the take home pay for the brokers is not as different as is indicated. In any event, it is notable that the average stockbroker earns about $200,000 per year, a college degree is not required to gain a license, and the training takes only 4 months.”

Related Web Resources:
UBS Reps Least Happy Among Big-Firm Brokers, Wall Street Journal

Registered Rep

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Posted In: Edward D. Jones , Financial Firms , Merrill Lynch , Miscellaneous , Morgan Stanley , UBS , Wells Fargo

December 9, 2009

UBS Loses Lehman Arbitration Note Claim by Small Investor

In an arbitration case that could affect numerous cases that are still pending, a Financial Industry Regulation Authority panel awarded a small investor $200,000 after finding that a UBS Financial Services broker acted inappropriately when he sold high-risk Lehman Brothers Holdings Inc. principal-protected notes to the claimant.

The case involving Lehman notes is one of the first to be decided by a FINRA panel. While the ruling won't establish a precedent, it could be an indication of how similar rulings may go in the future. “There are many cases pending against UBS and other firms that sold Lehman notes shortly before Lehman failed,” said stockbroker fraud attorney William Shepherd, whose firm, securities fraud firm Shepherd Smith Edwards & Kantas LTD LLP, is handling a number of such cases. “These cases often involve misrepresentations and omissions as well as unsuitability, since the investments were sold to clients who sought safety and income,” he added.

The claimant filed the arbitration claim accusing UBS of recommending structured products that are not suitable for “unsophisticated investors.” The broker purchased for the client a $75,000 return optimization note and a $225,000 guaranteed principal protection note. The FINRA panel determined that the claimant should be compensated for the principal protected note, in addition to legal fees and interest.

Although the amount awarded is less than what the investor hoped to recover, a UBS spokesman said the securities firm was disappointed that the claimant was awarded any damages and maintains the investor’s financial losses were a result of the collapse of Lehman Brothers.

Investor Wins Lehman Note Arbitration, Wall Street Journal, December 5, 2009

FINRA awards US investor in Lehman notes $200,000, Reuters, December 5, 2009

Continue reading "UBS Loses Lehman Arbitration Note Claim by Small Investor" »

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Posted In: Arbitration , Financial Firms , Lehman Brothers , UBS

September 28, 2009

UBS Securities, Citigroup Global Markets, and Deutsche Bank Securities Agree to FINRA Sanction Over Vonage IPO

Citigroup Global Markets, Deutsche Bank Securities, and UBS Securities have agreed to pay fines for Financial Industry Regulatory Authority sanctions over their handling of Vonage LLC stock's initial public offering in 2006. FINRA says that the firms’ failure to adequately supervise communications with customers cost investors hundreds of thousands of dollars. By agreeing to settle, none of the broker-dealers are agreeing to or denying wrongdoing.

The three firms acted as the Vonage offering’s lead underwriters. A “directed share program” was included. Clients used accounts with the broker-dealers to purchase about 4.2 million shares.

An external company designed and administered a Web site for DSP participants that the firms’ clients used to communicate about the IPO. According to the SRO, however, inadequate supervision and the failure to follow procedures regarding outside sourcing and directed share programs resulted in the broker-dealers being unable to respond appropriately or take effective action when certain clients obtained misinformation about their orders.

By the time customers were finally notified that shares were allocated to them, the Vonage stock price had dropped significantly compared to the offering price. In addition to paying the higher price, investors sustained financial losses when the stocks were sold.

UBS, Citigroup, and Deutsche Bank have agreed to fines totaling $845,000. UBS will pay a $150,000 fine and a maximum of $118,000 to 26 clients who are potentially eligible. In addition to its $175,000 fine, Citigroup will pay 284 potentially eligible customers a maximum of $250,000. Deutsche Bank will pay 59 potentially eligible clients a maximum of $52,000, plus its $100,000. Customers are to be compensated the difference between Vonage stock’s price when clients found out they had been allocated shares and the $17/share IPO price that they paid.


Related Web Resources:
FINRA Fines Citigroup Global Markets, UBS and Deutsche Bank $425,000, Orders Customer Restitution for Supervisory Failures in Vonage IPO, FINRA, September 22, 2009

Citi, UBS, Deutsche Fined Over Vonage IPO

Continue reading "UBS Securities, Citigroup Global Markets, and Deutsche Bank Securities Agree to FINRA Sanction Over Vonage IPO" »

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Posted In: Broker Fraud , Citigroup , Deutsche Bank , Financial Firms , UBS

September 16, 2009

Securities Fraud Lawsuit Against UBS AG Gets Added Steam with Employee Email Calling Collateralized Debt Obligations “Vomit”

UBS AG must post a $35.6 million bond, says Superior Court Judge John Blawie. Blawie says that hedge fund Pursuit Partners, LLC has sufficient evidence to pursue its securities fraud case claiming that the investment bank knew it was selling collateralized debt obligations that were toxic to institutional investors but did nothing to inform clients about the risks.

Blawie cited an e-mail written by a UBS employee that called the asset-backed securities “vomit.” Another e-mail noted that UBS was selling Pursuit CDOs that were “crap.”

The judge is letting the securities fraud complaint go forward without ruling on the case’s merits. Between July and October 2007, UBS sold the hedge fund CDOs valued at $40.5 million. Following the global credit crisis, there has been $1.7 trillion in losses and writedowns.

UBS employees marketed the CDOs to Pursuit while they were communicating with Moody’s Investors Services Inc. The credit-rating agency was tasked with reviewing UBS’s CDO investment grade ratings. Blawie says that the UBS employees found out after meeting with Moody’s that the CDOs would become “financial toxic waste.”

The securities fraud lawsuit claims that UBS new that Moody’s was going to change its rater’s methodology but that the investment bank continued to promote the CDOs as if the changes were not going to happen. When Moody’s tchanged its market-based formula to focus on where prices were going instead of current prices, the CDOs value immediately fell.

Pursuit contends that it suffered a $35.6 million loss as a result of UBS concealing the non-public data it had about the CDOs investment grade rating dropping. It also says that because UBS took two sides of a derivatives contract, the investment bank was able to liquidate the CDOs and did not sustain losses.

UBS denies the allegations and argues that Pursuit knew the risks that came with buying the CDOs. The investment bank claims that the hedge fund made the purchases at hugely discounted rates as high as 96%. UBS spokesperson said that one e-mail from Pursuit called the CDOs “sh__.”

Moody’s is also a defendant in the securities fraud lawsuit.

Related Web Resources:
Lawsuit Against UBS Resurfaces to Threaten Wall Street Itself, Seeking Alpha, September 15, 2009

UBS Hit by Another Lawsuit, Business Week, March 6, 2008

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Posted In: Collateral Debt Obligation , Credit Ratings Agencies , Financial Firms , Moody's , Securities Fraud , UBS

August 12, 2009

UBS AG and Merrill Lynch Collectively Fined $250,000 by FINRA for Closed-End Fund Actions

UBS Financial Services Inc. has agreed to be fined $100,000 and Merrill Lynch, Pierce, Fenner & Smith Inc. has consented to a $150,000 fine, says the Financial Industry Regulatory Authority, for alleged supervisory failures that resulted in the inappropriate short-term sales of closed-end funds that were bought at initial public offerings for the funds. By agreeing to settle, the broker-dealers are not deny or admitting to the FINRA charges. They are, however, consenting to the findings.

FINRA also announced that it was suspending five Merrill Lynch brokers for 15 days. Each of them must pay a $10,000 fine for allegedly making fund recommendations that were unsuitable for investors.

Merrill Lynch brokers that FINRA has sanction include:

• Kenneth C. Iwelumo (his clients lost about $563,000)
• Joseph Miller (approximately $130,000 in client losses)
• Ronald Kemp (about $411,000 in customer losses)
• Michael Kizman (about $210,000 in losses)
• John Ong (about $350,000 in client losses)

The investigation into the activities of a number of former UBS brokers is ongoing.

Closed-End Funds
Closed-End Funds are investment companies that sell a fixed number of shares during an initial public offering. These sales come with built-in sales charges. The CEF’s at issue came with a 4.5% sales charges and a 30-90 day penalty bid period after the IPO. If a client sold the CEF that had been purchased at the IPO during this time period, the broker would lose the commission.

FINRA says that both broker-dealers knew that CEF’s bought at IPO’s are more appropriate for long-term investments and that because of the sales charges that come with their purchases, it is inappropriate to engage in the short-term trading of CEF’s. FINRA claims that Merrill Lynch and UBS did not have the proper supervisory procedures and systems in place so that brokers couldn’t and/or wouldn't make such unsuitable CEF sales.

FINRA also says that both broker-dealers failed to warn supervisors about the potential issues that could result from such activity and did not properly train registered individuals. Due to this improper supervision, brokers for Merrill and UBS recommended that certain clients engage in short-term sales of CEF’s bought at IPOs without fully understanding the financial ramifications these recommendations would have on their clients’ finances.

FINRA is concerned about brokers who convince customers to buy CEF’s during their IPO’s and then wait until after the penalty bid period is over to recommend that clients sell the CEF’s—usually at a loss. These brokers then recommend that clients use the proceeds from the sale to purchase more CEF’s at initial public offerings.

FINRA Fines Merrill Lynch, UBS for Supervisory Failures in Sales of Closed-End Funds; Customers Get More Than $5 Million in Remediation, FINRA, July 28, 2009

Merrill, UBS Are Fined in Closed-End-Fund Case, The Wall Street Journal, July 29, 2009

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Posted In: Broker Fraud , Broker-Dealers , Financial Firms , Merrill Lynch , UBS

June 12, 2009

Brokers Renew Push for Investors to Buy Structured Products

Brokers are once again getting behind structured products, hoping that investors will bite. While sales of structured products during 2008’s 4th quarter—at $5.8 billion—was down 75% from the year’s 1st quarter, sales are starting to go up. One reason for this is that certain structured products, such as return-enhanced notes and principal protected notes, are considered safer than reverse convertibles, which led to some of the worst losses for investor.

Ideally, structured products are supposed to provide sturdy profits, while limiting losses, and brokers like them because the commissions are high. However, representatives must still account for why these products haven’t delivered the way investors were told they would. Many investors that bought structured products from Lehman Brothers, such as the Lehman principal-protected notes, incurred some large losses. Some of these notes were bought through a UBS Financial Services office in Houston, Texas.

Until the bear market struck, structured products did incredibly well, and sales almost doubled to $105 billion in 2007 before dropping to $70 billion last year when structured products, collateralized debt loans, and credit default swaps played a huge role in the global financial collapse.

Reverse convertibles are considered the most high-risk structured product—short-term bonds with a large interest that can seriously hurt investors if the underlying stock drops dramatically. Investors can end up with shares with a value far below the principal. For example, 78-year-old Dominic Annino says he invested $300,000 in IndyMac shares and JetBlue shares and lost money after the stocks fell. He filed an arbitration complaint with FINRA and claims that the broker that sold him the Wells Fargo reverse convertibles never fully explained to him what he was getting himself into. Still, brokers are hoping that last year’s stock market fiasco won’t discourage investors from trying structured products again.

Twice Shy On Structured Products? Wall Street Journal Online, May 28, 2009

Understanding Structured Products, Investopedia

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Posted In: Financial Firms , Lehman Brothers , Reverse Convertibles , Structured Products , UBS , Wells Fargo

June 4, 2009

UBS Financial Services Misled Investors about Lehman Brothers Securities, Says New Hampshire Regulators

According to New Hampshire securities regulators, UBS Financial Services Inc., a unit of UBS AG, misled investors regarding complex securities that were issued by Lehman Brothers before the latter filed for bankruptcy protection in 2008. The Bureau of Securities Regulation says investors were misled when the representatives for the UBS unit told them that the securities were safe, while failing to let them know that Lehman Brothers was in trouble. The state regulators are also accusing UBS of failing to properly supervise the employees that sold the structured products and of engaging in improper sales practices.

Some 42 New Hampshire investors could lose more than $2.5 million from securities underwritten by Lehman Brothers. State regulators have filed a cease-and-desist order against UBS and they are seeking an unspecified sum from the financial firm.

UBS disputes the Bureau of Securities Regulation's allegations. The investment bank claims it didn’t do anything improper when it sold the Lehman products to UBS clients and that its employees engaged in the proper sales practices, followed all regulatory guidelines, abided by client disclosure guidelines, as well as followed firm procedures and industry regulations. The investment bank contends that any losses experienced by investors occurred because Lehman Brothers failed unexpectedly. UBS vows to combat the New Hampshire regulators' allegations.

Already, a number of investors have filed claims against Lehman Brothers. Last year, with $613 billion in debt, Lehman filed the largest bankruptcy in US history. Globally, the collapse of Lehman Brothers resulted in investor losses worth billions of dollars. Many clients have blamed lenders for failing to warn them that Lehman was in trouble.

Meantime, Credit Suisse has offered to pay $140.7 million to compensate more than 3,700 of its retail clients for their Lehman financial products that now have no value.

Securities Fraud Attorney Sam Edwards, partner of the law firm of Shepherd Smith Edwards & Kantas LTD LLP says: "While many smaller investors into Auction Rate Securities have now been paid, our firm is representing a number of larger investors, many of whom have millions of dollars that have been frozen for more than a year. Many of these are business which have been crippled by the loss of liquidity of these funds and are seeking resulting business losses."

Related Web Resources:
UBS says will fight New Hampshire Lehman case, Reuters, June 4, 2009

UBS Sold Unsuitable Lehman Securities, New Hampshire Alleges, Bloomberg.com, June 4, 2009

Bureau of Securities Regulation


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Posted In: Broker Fraud , Credit Suisse , Financial Firms , Lehman Brothers , UBS

April 23, 2009

Another Securities Fraud Lawsuit Filed Against UBS International

Another securities fraud lawsuit has been filed against UBS International, which is a division of UBS. This latest claim brings forth allegations similar to those filed earlier in the year against UBSI. Both claims revolve around the use of loans to buy securities, such as stocks, and UBS created products. Shepherd Smith Edwards & Kantas LTD LLP is the stockbroker fraud law firm to file this latest case.

According to the securities fraud claim, a UBSI broker working out of the Coral Cables office recommended specific loans along with a portfolio that mostly was comprised of equities to a certain Latin American client. Because of this, “margin calls” were made on the UBSI accounts.

When the client couldn’t come up with additional funds, the assets already in the account were sold off, resulting in losses worth hundreds of thousands of dollars. The complaint contends that the transactions made within the UBSI accounts were unsuitable and inappropriate and placed most (if not all) of the investor’s funds at risk.

It is unclear whether the satellite office in Florida had supervisors or compliance officers charged with overseeing the broker. There is evidence, however, that UBSI sent client statements to the broker’s other office in Guatemala rather than directly to the clients. This could have resulted in the client not being able to avail of certain safeguards. The broker also used Americorp Trust, an offshore entity located in the Netherlands Antilles, to deal with this specific client’s assets.

Shepherd Smith Edwards & Kantas LTD LLP specializes in securities fraud cases requiring litigation or arbitration, as well as cases involving broker misconduct.

Related Web Resource:
SEC Center for Complaints and Enforcement Tips, SEC.gov

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Posted In: Financial Firms , UBS

March 9, 2009

UBS Sanctioned For Madoff-Related Losses by Luxembourg Financial Services Regulator

In Europe, the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) has censured UBS’s Luxembourg-based branch for failing to execute due diligence and, as a result, allegedly allowing for the massive losses investors have incurred from the Bernard Madoff's $50 billion Ponzi scam. The Luxembourg financial service regulator is accusing Switzerland’s biggest bank of a “serious failure” in the way it managed a feeder fund that funneled assets to Madoff-related investments. Luxembourg’s CSSF is giving UBS three months to remedy the problems.

UBS, however, is disputing the CSSF’s claim that it violated its contractual obligation to clients. The investment bank says the Luxalpha fund was set up at the request of wealthy clients that wanted a tailor-made fund that would let them invest their assets with Bernard Madoff. UBS says these clients knew that it was not responsible for their assets' security.

Following news of the Madoff scheme and revelations that some French investors had allegedly lost billions of dollars because their investments were channeled to Madoff through Luxembourg-based mutual funds, the European Commission announced it would start investigating the way EU member states use the EU mutual fund regulatory regime (UCITS, which refers to Undertakings for Collective Investment in Transferable Securities).The EU also said that approval of a new regulatory regime will more than likely be delayed so more changes can be considered to ensure that investors are protected in the future from losses such as the ones that occurred with Madoff.

The French government accused UBS of lax supervision of mutual funds. French officials have also accused Luxembourg of being lax when it comes to EU mutual fund regulations. They've called on the EU to come up with stricter rules. Luxembourg, which has one of the EU’s mutual fund financial service sectors, disagrees with France’s accusations.

Madoff's scheme has resulted in massive losses for individual investors, institutions, world financial markets, politicians, charities, and many others.

Luxembourg regulator censures UBS over Bernard Madoff, Times Online, February 26, 2009

French investors to take legal action against banks over Madoff feeder funds, Times Online, January 14, 2009

Related Web Resources:
Feds say Bernard Madoff's $50 billion Ponzi scheme was worst ever, Daily News, December 13, 2008

Luxembourg's Commission de Surveillance du Secteur Financier

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Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Madoff Ponzi Scheme , UBS

February 13, 2009

UBS Sued by New Orleans Employees’ Retirement System for Alleged Tax Scam that Helped the Rich While Causing Investor Losses

In the US District Court for the Southern District of New York, UBS AG was named as a defendant in a class action lawsuit alleging that the company engaged in a tax scam designed to help rich US investor avoid federal taxes. The plaintiff in the case is the New Orleans Employees Retirement System, which includes purchasers that publicly traded UBS securities between May 4, 2004 and January 26, 2009.

The 120-page complaint says that UBS would encourage analysts and investors to consider “new net money” that came to the investment bank during each reporting period as a major indicator of the company's performance and future prospect. The securities fraud class action lawsuit, however, contends that UBS employed a fraudulent scam to lure a material amount of this “new net money.” This scheme also helped extremely rich US investors avoid federal taxes by placing billions of their dollars in undeclared Swiss bank accounts.

The New Orleans Employees' Retirement System claims the investment bank's Swiss bankers acted improperly and violated Securities and Exchange Commission regulations when they sold securities in the United States even though they lacked the necessary licensing. The plaintiff contends that UBS's fraudulent actions led to the firm generating fees worth hundreds of millions of dollars each year and that these funds were used to create more loans through fractional lending.

The lawsuit also accuses UBS of taking action to conceal the tax scam from investors, the Internal Revenue Service, and the Department of Justice while purposely making it appear that the firm’s Wealth Management division was growing at an unprecedented pace.

The plaintiff says UBS's claims that it had “robust internal controls” and “state of the art risk management tactics” were misleading and false because while UBS was providing these reassurances to investors, it was in fact engaged in its tax evasion scam.

In addition to UBS, defendants in the class action case include Marcel Ospel, Phillip Lofts, Peter Wuffli, Mark Branson, Peter Kurer, Martin Liechti, Peter Kurer, and Raoul Weil.

The putative Class is seeking billions of dollars in damages.

Related Web Resources:
The New Orleans Employees' Retirement System, Through Its Counsel Labaton Sucharow LLP, Files Class Action Lawsuit Against UBS AG in Connection With Tax Haven Scheme -- UBS, Trading Markets, January 30, 2009

UBS AG

New Orleans Employees' Retirement System v. UBS AG, Justia Docket

Continue reading "UBS Sued by New Orleans Employees’ Retirement System for Alleged Tax Scam that Helped the Rich While Causing Investor Losses " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Class Action Lawsuits , Financial Firms , Securities Fraud , UBS

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