UBS Financial YES Program High Risks and Conflicts of Interest Class Action

This class action brings suit against UBS Financial Services, Inc. for its Yield Enhancement Strategy (YES) program. The complaint makes several allegations, including that UBS concealed that the potential risks of the program were larger than the potential gains, that the accounts enabled UBS to double-dip on fees, and that UBS had a conflict of interest because it made more when customers lost money.

The class for this action is all UBS customers who elected to have a YES account and who suffered damages.

The complaint alleges that UBS started the YES program after “years of lagging results and poor performance in its investment banking business…” It was meant to change its “focus from investment banking to brokerage services under the guise of wealth management.”

UBS began to charge customers fees for financial advice. These are usually based on the value of the customer’s financial portfolio. UBS realized, the complaint alleges, that it could “double-dip,” or charge fees based on the portfolio value a second time. This happened when customers used their securities as collateral for their YES accounts.

The complaint alleges, “YES advisory customers did not have to invest any money to choose a YES account. Rather, they only had to make the decision to designate a portion of their existing UBS investment portfolio as collateral for a margin account, called the ‘Mandate,’ that would be used for the YES program.” According to the complaint, UBS told customers that the YES program would generate a modest yield on the amount in the Mandate.

In fact, the complaint alleges, the YES accounts were high-risk and UBS did not tell customers that YES accounts “would expose their portfolios to far higher risk and losses compared to the potential returns.” These losses would occur “during regularly[-]occurring market conditions[.]”

The complaint also alleges, “While YES was a money[-]losing account for UBS customers, it was at the same time a windfall for [UBS], who collected more fees and charges when YES participants lost money than when they made money.” The complaint claims UBS did not tell customers about this conflict of interest. Furthermore, the YES program was designed in a way that made it difficult for customers to exit while they were losing money.

The UBS Client Relationship Agreement acknowledged that UBS had a fiduciary relationship with the customer. Fiduciaries are supposed to work in the interest of the customers. UBS customers needed to know about the conflicts of interest in order to decide, the complaint says, whether they wanted a YES account and whether they would pledge a substantial Mandate to it.

Another thing that UBS did not disclose, the complaint alleges, is “the existence of legal proceedings against the YES Team, accusing them of stealing confidential information relating specifically to the YES program from their former employer, Credit Suisse.” This information, the complaint claims, would also have been material to customers considering working with the YES Team.

Article Type: Lawsuit
Topic: Investments
Tags: Breach of Fiduciary Duty, Investments, Misrepresentations or False Statements