UBS Stockbroker Under Fire For Yield Enhancement Strategy (YES) Sales

UBS Stockbroker Under Fire For Yield Enhancement Strategy (YES) Sales

Former UBS broker Frederick Maximillian Kort is facing allegations of making unsuitable investment recommendations to his customer and not fully disclosing the risks involved. Having been fired from UBS in 2018, Kort remains registered as an investment advisor with IHT Wealth Management, however, BrokerCheck records show four customers complains including two that were denied last year.

The strategy at the center of these allegations is thought to be the Yield Enhancement Strategy (YES) which is currently at the center of several suits against UBS. Clients have claimed that UBS was advising the use of this scheme without fully disclosing the risk involved in the Iron Condor strategy. Many of the firm’s brokers have faced accusations of misselling the strategy and it seems highly likely this is the case for Kort.

The facts of the complaint against Kort read as you would expect knowing what we now do about the YES investment strategy. In a claim filed in May 2020, one client accuses him of investing their money in an unsuitable scheme given the customer level of experience in the market. As is typical of their claims facing UBS this customer also claims that the risk of the investment was not fully disclosed. Other Financial Industry Regulatory Authority arbitrations cases also allege misrepresentations of the scheme and non-disclosure of risk to the customer’s portfolio. Another customer filed a complaint in October 2019 seeking $455k in damages, while another July 2019 is claiming $344k.

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UBS’s Yield Enhancement Strategy held investors’ assets in margin accounts while purchasing four options and different strike prices, all with the same expiration date. This system works best with low market volatility in the underlying asset, and many UBS customers went on to lose huge sums of money from their investment portfolios. The problem lies in the fact that customers claim to not have been made aware of the risk involved and the scheme was marketed as a low-risk option that would yield returns above those of the fixed-income market.

Had the market seen very low volatility of late then potentially the strategy would have operated as advertised, however in the wake of the COVID-19 pandemic the market has seen a huge rise in volatility caused by global uncertainty. On top of this unexpected market volatility is also reported that UBS brokers may have been betting against market trends further increasing the risk to investors in the scheme, this again was something not disclosed to any investors.

The strategy was managed by UBS’s private wealth management division. Its investors continue to seek damages from UBS for the losses incurred in the scheme, given that huge sums of commissions and fees were banked by UBS and its employee in the administration of the strategy.

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