UBS Financial Services Inc. has been asked to pay $3.86 million as compensation to customers who had filed a Financial Industry Regulatory Authority (FINRA) arbitration claim against them for losses incurred in their Yield Enhancement Strategy (YES) options strategy offering. This includes $2.9 million as damages and $966,000 towards attorney fees. The customers had to sough $5 million as compensation.
According to an unnamed executive, this is the 13th case where UBS has been on the losing end of a customer claim related to the YES strategy. In 15 other cases adjudicated by FINRA panels, UBS has been on the winning side; in other words, no compensation was awarded to the complainant.
Investment strategies gone wrong have led to a number of investor claims being faced by UBS. Investor complaints over their Puerto Rico bonds and bond funds is another example of a strategy that has generated a rash of complaints.
The UBS YES Case
In the recent YES case, customers Elise and John Oren alleged breach of supervisory duty, negligence, and supervisory negligence in addition to a raft of other similar allegations, as gleaned from the FINRA arbitration award recently finalized.
That UBS “recommended a highly speculative managed account options strategy product, the Yield Enhancement Strategy, which was unsuitable and inappropriate for Claimants’ risk tolerances and investment objectives,” is understood to be the cause of action triggering the allegations made by the client, again, as per the award summary now available.
No comment was offered by a UBS spokesperson on the award.
The YES Strategy of UBS
The YES strategy relies on borrowing against client holdings with UBS and using the funds generated to trade options, as reported by the Wall Street Journal last year. Effectively, it operated like a margin loan to cover gaps in which the customer might have to put in more securities or cash, or both.
The holdings in the YES strategy were at their highest around the middle of 2018, when they stood at about $6 billion.