An irreverent Wall Street Blog
by Bill Singer
 
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

UBS To Pay Nearly Nearly $2 Million ETF Fine and Restitution
Written: May 2, 2012

<span class=

For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority (“FINRA”), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, : UBS Financial Services Inc. (“UBS”) submitted a Letter of Acceptance, Waiver and Consent (“AWC”), which FINRA accepted. In the Matter of UBS Financial Services Inc., Respondent (AWC 20090182292, May 1, 2012).

UBS (and its predecessor, PaineWebber & Co.) has been a FINRA-registered broker-dealer since October 1936. UBS is a full service brokerage firm headquartered in Weehawken, NJ, and presently has some 385 active branch offices with about 7,000 registered financial advisors.

July 2009 FINRA ETF Notice

As described in “Non-Traditional ETFs: FINRA Reminds Firms of Sales Practice Obligations Relating to Leveraged and Inverse Exchange-Traded Funds”(FINRA Regulatory Notice 09-31, June 2009), ETFs are typically registered unit investment trusts (UITs) or open-end investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index.

Leveraged ETFs seek to deliver multiples of the performance of the index or benchmark they track. Some Non-Traditional ETFs are “inverse” or “short” funds (or combinations of both), meaning that they seek to deliver the opposite of the performance of the index or benchmark they track. Such objectives are achieved through the use swaps, futures contracts and other derivative instruments.

The AWC asserts that Non-Traditional ETFs generally “reset” daily, and such a factor can have significant ramifications that distort the performance of the subject ETF and its underlying index or benchmark.  For example, the AWC notes that the Dow Jones U.S. Oil & Gas Index, between December 1, 2008 and April 30, 2009, gained two percent, while an ETF seeking to deliver twice the index’s daily return fell six percent, and the related ETF seeking to deliver twice the inverse of the index’s daily return fell 26 percent.

Despite the risks associated with holding Non-Traditional ETFs for longer periods, the AWC alleges that certain UBS customers held Non-Traditional ETFs for extended time periods during the relevant period of January 2008 through June 2009. In fact, certain UBS customers with a primary investment objective of income held Non-Traditional ETFs for periods of several months.  The AWC offers these examples:

• A 64-year old customer with a primary conservative risk tolerance profile and net worth of $290,000 held a Non-Traditional ETF for 139 days in his IRA account and sustained losses of over $5,700 (43% of his initial investment); and

• A 54-year old customer with a primary conservative risk tolerance profile and net worth of $400,000 held a Non-Traditional ETF for 21 days and sustained losses of over $5,000.

During the relevant period from January 2008 through June 2009, FINRA alleged that UBS failed to establish and maintain a supervisory system, including written procedures, reasonably designed to achieve compliance with applicable NASD and/or FINRA rules in connection with the sale of leveraged, inverse, and inverse-leveraged Exchange-Traded Funds (“Non-Traditional ETFs”).  The AWC alleges that UBS supervised Non-Traditional ETFs the same way it supervised traditional ETFs. Thus, UBS failed to establish a reasonable supervisory system and written procedures to monitor the sale of Non-Traditional ETFs.

The AWC further alleges that UBS also failed to establish adequate formal training regarding Non-Traditional ETFs during the Relevant Period.

In addition, certain UBS registered representatives allegedly did not have an adequate understanding of Non-Traditional ETFs before recommending these products to retail brokerage customers. Certain UBS registered representatives also made unsuitable recommendations of Non-Traditional ETFs to certain customers with a primary investment objective of income.

As such, the AWC alleged that UBS violated NASD Rules 3010, 2310, and 2110 and FINRA Rule 2010, and, according to the terms of the AWC, FINRA imposed sanctions of a Censure, a $1.5 million fine, and $431,488 in restitution.


Topics: UBS  ETF  FINRA  Bill Singer  BrokeAndBroker  
 
[^top^]

Previous Entries
April 18, 2014
We just made it through another tax season. The good news is that you filed and are fully paid up -- or, the bad news is that you didn't file or you h... Read On
April 17, 2014
In this digital age there are still folks who physically cut-and-paste. How quaint. Of course, quaint or not, when you start using the terms "cut-and-... Read On
April 16, 2014
Here's an interesting cocktail of facts: an IRA, a mother, powers of attorney, and a stockbroker son. Add into that mix questions about whether a $60,... Read On
April 15, 2014
Stockbroker, Compliance, Legal, and Regulatory JobsFor a full listing of current job openings, visit the BrokeAndBroker Employment Page ... Read On
April 14, 2014
Auction Rate Securities are the unwanted gift that keeps on giving. In today's BrokeAndBroker.com Blog, we report about yet another bit of collateral ... Read On
April 12, 2014
Citicorp Loses Bizarre Motion To Compel Class Action ArbitrationApril 11, 2014As part of the terms of his employment, former Citicorp Credit Services,... Read On
BrokeAndBroker.com Job Search
Related Topics
Tag Cloud
Internet FINRA Bear Stearns Bloomberg SEC NASD NYSE Money Laundering Due Diligence Waiver Forbes China Chepucavage Broy Woody Allen Madoff NAC NPR Marketplace Stanford UBS Ketchum Antitrust NASDAQ RRBDLAW Schapiro Bill Singer BrokerAndBroker USERRA Brokeandbroker.com Morgan Keegan Arbitration BrokeAndBroker.com Khuzami BrokeAndBroker Aleynikov Goldman Sachs brokeandbroker Promissory Note U4 Bill SInger EFL CFTC Huffington Post Flash Crash arbitration RBC RRBDLAW.com Ponzi Affinity Fraud Wachovia Raymond James BrokeandBroker.com Expungement Fraud Securities Fraud Outside Business Activity Registered Rep Magazine FOREX BrokerAndBroker.com FBI Banc of America Pro Se Supreme Court Morgan Stanley Smith Barney E*Trade Margin email Galleon Penson U5 Defamation Protocol Wells Fargo Punitive Damages Citigroup Merrill Lynch ARS Employee Forgivable Loan Street Legal Morgan Stanley AWC Fidelity Bankruptcy Broke And Broker HFT David Sobel Day Trading Ameriprise Commissions Spouse Schwab CRD Kenneth Starr IRS CNBC Complaint ATM Skimming Hacking Phishing Malware Naskovets Poteroba Koval Lincoln Financial Selling Away Outside Business Activities Rakoff 2nd Circuit Second Circuit IRA 401k Forgery Tax RRBDlaw.com Email Netschi Moore Whistleblower Street Sweeper Tran Bharara Facebook Online Severance Bonus Eligibility Rule TD Ameritrade Hedge Fund SAC 1099 Smith Barney Lehman Brothers IC3 Scottrade Lehman JPMorgan Chase Hertz Insider Trading Bank of America Elles Bribe Auction Rate Securities Raiding Spam Edward Jones Medicare Diabetes Dow Schumer Walter Bid Rigging Real Estate Discrimination Wall Street Statutory Disqualification Form U4 Form U5 Indictment Boyland DOJ Corruption bill singer FTC Do Not Call FINRA Arbitration Costa Rica Settlement LIBOR Varney Plea Rule 8210 RRBDlaw Appeal Fowler LPL Johnson US Airways Reg D MSSB Vault Loan SunTrust Discovery Employment Rosenthal Recruiting Lawyer Trading Platform JP Morgan Employment Tuesday Wrongful Termination Bank Guarantee WaMu Solicitation REIT Martin Credit Cards Away Account Credit Repair PN Advisor Placement Group Forex Mortgage Private Placement Moon Merrill Anderson Exam Lee Borrowing Tax Lien Conversion Oppenheimer Wedbush Felony Misdemeanor Expenses ING Lien OTR Estate Jobs Florida Credit Card Elderly Flash Drive Annuity FNMA BrokeAndBroke TIC DWI Promissory Notes Suitability Will POA Power of Attorney Casino NSF MF Global Counterfeit Preet Bharara Corzine Hacker Prison NASAA Aguilar FCPA Identity Theft Gold Dell Bar Injunction Bank Deutsche Bank God HSBC Private Placements Eric Stein Wire Fraud CCO Joshua Brown Backstage Wall Street Obstruction of Justice Retaliation Variable Annuity Outside Account Options Telephone Wine Social Media ADA Pacifico Non-Prosecution Agreement Confirm Tax Fraud Retirement OBA Equity Indexed Annuities EIA MetLife Continuing Education Impersonation Annuities BBVA Business Expenses OIP ETF JOBS Act Mail Fraud Parking Variable Annuities Signatures BitTorrent Wire Transfer Wire Crowdfunding Nasdaq Away Accounts WSP Laptop Dodd Frank Checks PST Solicited Unsolicited Congress SRO Wife Discretion Non-Solicitation Restaurant Commodities Private Securities Transaction Offer of Settlement employment jobs Great Recession Chase Investment Services Barclays Willful Apple Time And Price T&P Husband Letter of Authorization LOA Knight Test Practice Sale Unfair Competition Signature Judgments Undisclosed Settlement Trainee Fee Trust Laser Side Bar Mattera Female Sales Assistant Kennedy Argentina Judgment Bank Fraud TSSB Trustee Frumento 6th Circuit Proctor Beneficiary NYAG Schneiderman Gallagher White Compromise Website Supervision Piwowar Tax Liens signature VA
 
Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+