FINRA Arbitration Panels Decide Against UBS in Two Independent YES Options Strategy Claims

The Yield Enhancement Strategy, or YES options strategy, toll is mounting for UBS Financial Services Inc. Though the count seems to be evenly distributed so far between the two sides, the tide is turning in favor of investors, if recent decisions are to be taken into account. The current count is 17 for UBS and 21 for customers, in the 38 cases decided so far.

In two recent arbitration cases, the FINRA (Financial Industry Regulatory Authority) panels have decided against UBS, with the firm being ordered to pay out a total of $450K between the two independent decisions.

Matthew Thibaut, a partner with Haselkorn & Thibaut, P.A. has many years of experience as both a former financial advisor and as an attorney who has previously defended broker-dealer firms, and his observation is that: “… it’s clear that UBS clients in many instances were told one thing at the time they invested, and now they are being told something quite different.”

Case 1

UBS was ordered to pay $252,627 to compensate for losses incurred by claimants Dennis and Nadine Ainbinder, trustees of the 1992 Ainbinder Family Trust, on investments in YES. The claimants had sought compensatory damages between $1 million and $5 million. The decision of the three-member panel was unanimous. The award includes:

  • $147,192 in compensatory damages
  • $60,677 in costs
  • $44,158 in attorneys’ fees

Case 2

The following day, the Richard G. Russell Jr. Revocable Living Trust was awarded $210,000 in compensatory damages by a separate FINRA arbitration panel. This award was also unanimous.

The lawyer of Richard G. Russell Jr., the portrayal by UBS of YES being a low-risk overlay on its bond portfolio of Russell was false.

It had led retired health care executive Russell to invest in YES beginning in 2017. At that time, he was being advised by a registered representative of UBS stationed in their office in Century City, Los Angeles. After losses of almost 20% of the investment, Russell made an exit from the product in 2018.

Panel decisions in Case 2 explained

Though he was not named in the complaint, a request by Scott Michael Rosenberg, the co-portfolio manager, for clearing the dispute from registration records was denied by the panel.

The granting of expungement to Steven Westerman, the UBS broker of Russell, who also was not named in the complaint, was one of the sticking points for the panel. Two were in favor of the removal of the complaint with one against.

In the award, panel members Joseph Howard Cooper and Darrell Gene Smith wrote, “[Russell] was most certainly disappointed in the performance of his investments in the strategy sponsored by [UBS] known as YES. While we are awarding damages against [UBS], we do not find that [Russell’s] financial advisor, Westerman, lied to him.”

Cherie S. Lewis, the chair of the panel, held the view that since compensatory damages were awarded, it could not be denied that the investment had caused harm to the claimant, and wrote “It would be illogical and legally indefensible to award [Russell] the amount of $210,000 in damages from [UBS], while simultaneously expunging the record of [UBS’] employee who had the most frequent contact with [Russell] during the relevant time period,” in the award.

Final word

It is rare for arbitrators to explain their decisions. The disagreement between panel members has the potential to impact future decisions on YES-related arbitrations.

No comment was forthcoming from UBS spokespersons.

UBS has recently reached a settlement of $25 million with the Securities and Exchange Commission (SEC) over charges of having defrauded clients investing in their YES product that was designed for, what else, better returns for clients, using proceeds of borrowing against the client’s account for generating returns through the investment of the proceeds in options.

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