FINRA Arbitrators Find No Evidence For Customers' $10 Million UBS YES Claims

October 26, 2021

In poker and arbitration there is the game within the game. There's the bluff. There's misdirection. There's tactical betting. There's strategic betting. There's knowing when to hold. And when to fold. All of which may not make much of a difference if you're dealt a crapola hand. In a recent FINRA arbitration, former UBS customers sought $10 million in damages based upon allegations about the firm's options program. Ante up.

Case in Point

In a FINRA Arbitration Statement of Claim filed in March 2019, public customer Claimants asserted securities fraud, common law fraud and misrepresentation, unsuitability, unsuitable product, breaches of fiduciary duty and of contract, negligence, and failure to supervise. Respondent UBS generally denied the allegations, asserted various affirmative defenses, and sought the expungement of the matter from the Central Registration Depository record ("CRD") of an unnamed party. In the Matter of the Arbitration Between Henry P. Ingram and Henry P. Ingram, Jr., Claimants, v. UBS Financial Services Inc., Respondent (FINRA Arbitration Award 19-00684)

Getting to YES

The FINRA Arbitration Award characterizes the causes of action as relating to "Claimants' investment in the Yield Enhancement Strategy ("YES") offering with Respondent." According to some marketing materials, UBS' YES strategy sought to generate returns through the strategic sale and purchase of S&P 500 Index option spreads. The purchase of short term below-market puts and above-market calls options with the same duration as the puts and calls sold would purportedly minimize upside risks. Supposedly, the strategies limited the maximum loss to the premium paid. Apparently, some investors disagree with that sales pitch, and, the UBS "YES" strategy has become the stuff of litigation, many online articles explaining why it failed, and numerous notices from law firms offering to represent victims. FINRA's online BrokerCheck database as of October 26, 2021, discloses that FINRA Arbitration #19-00684 (the Ingrams' arbitration) involved allegations of "unsuitability and misrepresentation regarding an options overlay strategy investment." 

Starting the Bidding at $10 Million

In their FINRA Arbitration Statement of Claim, Claimants sought about $10 million in compensatory damages. As the case progressed, the FINRA Award reflects the following change in the damages sought:

During the hearing, Claimants requested total damages in the amount of $5,042,923.80, as follows: compensatory damages for losses in Claimants' accounts in the amount of $3,547,793.92; pre-judgment interest in the amount of $237,532.06, from March 8, 2019 to October 4, 2021, at the rate of 4.25 percent; attorneys' fees on a 33 and 1/3 percent contingency basis in the amount of $1,182,597.82; costs and expenses in the amount of $75,000.00; and an unspecified amount of punitive damages. 

At the close of the hearing, Claimants withdrew their request for attorneys' fees in the amount of $1,182,597.82.

at Page 2 of the FINRA Award

Going to the Video

There are proponents of video-conferenced arbitration hearings -- and there are opponents. Some feel that such hearings are a fair alternative to the delays imposed upon live hearings by the Covid pandemic; whereas others argue that something is lost when in-the-flesh human beings are transformed into images on a screen. It's a tough call and one that often has consequences, both favorable or unfavorable for Claimants and Respondents, for the public investor and the industry. Notwithstanding the pros and cons of videoconferences, Claimants filed an Unopposed Motion for an Order for a Virtual Final Hearing, and, in response, the FINRA Arbitration Panel ordered video-conferenced evidentiary hearings, which occurred in October 2021.


The FINRA Arbitration Panel, composed of three Public Arbitrators, denied Claimants' claims and recommended the expungement of the unnamed party's CRD based upon a FINRA Rule 2080 finding that the Claimants' claim, allegation, or information is factually impossible or clearly erroneous. In offering its rationale for recommending expungement, the Panel explained that:

The Panel finds that Unnamed Party Lane did not recommend, nor did Unnamed Party Lane otherwise encourage either Ingram or Ingram, Jr. to purchase or continue to hold an unsuitable options overlay investment product (Respondent's YES). 

The Panel finds that Unnamed Party Lane did not, with respect to either Ingram or Ingram, Jr., misrepresent the nature and risk level of the YES product. 

With an ultrahigh net worth, Ingram has over forty (40) years of stated investment experience. Ingram is a sophisticated entrepreneur, successful businessperson, and well-seasoned professional. The Panel finds that Ingram aggressively pursued options strategies before, during and after Ingram was Respondent's client. Unnamed Party Lane's testamentary evidence (that the Panel finds credible) and the documentary evidence (including several executed documents by Ingram) confirms Ingram's full understanding that YES was "aggressive" and "high risk." The latter being "tolerance," which Ingram accepted and acknowledged in writing. 

As to the issue of "diminished capacity," and the allegation that, since Ingram was over seventy (70) years of age, Ingram's actions (several telephone conversations with Unnamed Party Lane, Unnamed Party Lane's luncheon with Ingram and Ingram's wife, and Ingram's vacillation in confirming Ingram's last YES order) should have raised "red flags" requiring Unnamed Party Lane, the YES partner team and Respondent's supervisory personnel to re-evaluate Ingram's suitability. The Panel finds Unnamed Party Lane's testimony to be credible, and that the YES partner team and the supervisory personnel acted appropriately and within established FINRA rules and Respondent's policies. 

The Panel heard and reviewed Ingram, Jr.'s testimony and the documentary evidence related to Ingram, Jr.'s claim. Ingram, Jr. is a successful entrepreneur, a sophisticated businessperson and actively engaged in, among other things, real estate transactions. The Panel has determined that Ingram, Jr., while encouraged by Ingram, to invest in YES, was well aware of the aggressive nature of the YES product and the associated risks. Ingram, Jr. executed a Client Qualification and Agreement for Options, acknowledging that Ingram, Jr.'s risk tolerance was "high risk." Ingram, Jr. also was provided with disclosure documents, and other written material stating, among other things, that Ingram, Jr. could lose more than Ingram, Jr.'s original investment. The Panel did not find Ingram, Jr.'s testimony credible. 

The Panel found no testamentary or documentary evidence supporting Claimants' asserted causes of action upon which their claims have been based. Those causes of action are: securities fraud; common law fraud and misrepresentation; unsuitability; unsuitable product; breach of fiduciary duty; breach of contract; negligence and failure to supervise, in violation of federal securities laws, Florida Securities Statutes and common law, and FINRA rules

at Pages 3 - 4 of the FINRA Award

Finally, the FINRA arbitrators assessed the "Total Hearing Session Fees" of $19,950 solely against the Claimants, which may serve as a further indication of the Panel's views as to the weaknesses in the Claimants case.

Bill Singer's Comment

Compliments to the FINRA arbitrators for penning a detailed rationale.

Claimants came out of the box with a whopping $10 million demand. That's a big number -- but just because it's big doesn't mean it wasn't credible; on the other hand, when dealing with a major financial services conglomerate such as UBS, Wall Street's big boys often opt to call your bet and force you to play your cards.  Which is what seems to have happened here.

The thing about Claimants' $10 million demand is that apparently once the actual cards were dealt and the high-stakes arbitration poker game began, the customers pulled some of their chips out of the pot and reduced their opening bet to about $5 million. Which makes you wonder whether UBS sat down at the FINRA arbitration table feeling that the Claimants were playing games and not really making a serious bet -- like those folks who slide a stack of chips into the middle of the table but don't quite take their finger off the chips, and, after some hemming and hawing, they pull the stack back and replace it with something much smaller. On top of that, at the hearing's close, "Claimants withdrew their request for attorneys' fees in the amount of $1,182,597.82." All of which tends to elicit head shaking and sighs from the more veteran players at the table. Then again, who knows if that feint wasn't all part of a game within the game.

In the end, Claimants sought $10 million, cut their demand to about $5 million, wound up with Zippo, and, to add insult to injury, were charged nearly $20,000 in hearing fees. Ouch!