SEC says UBS to pay $15M settlement over derivatives sales

UBS agreed to pay over $15 million to settle U.S. Securities and Exchange Commission charges that the bank failed to properly instruct advisers on risks tied to structured products. 

The case revolves around the sales of approximately $548 million in reverse convertible notes (RCNs) to 8,743 UBS retail customer, who were relatively inexperienced and unsophisticated, between 2011 and 2014. The RCNs are complex securities that feature embedded derivatives whose performance is driven by the concept of implied volatility.

“This inadequate training and education led to the unsuitable recommendations of RCNs to certain of the customers who had identified to UBS modest reported income and net worth, primarily moderate or conservative investment objectives, and some of whom were retired,” the SEC order states.

UBS will pay $8.2 million in disgorgement, a $6 million penalty and $798,316 in interest.

”We can now analyze literally hundreds of millions of trading records using sophisticated coding techniques that allow us to build platform wide cases rather than cases built investor by investor.  We found that UBS dropped the ball by allowing the sales of complex financial products to retail investors without adequately training its sales force,” said SEC enforcement chief Andrew Ceresney.