UBS Faces Lawsuits Over Yield Enhanced Strategy

UBS Faces Lawsuits Over Yield Enhanced Strategy

High-risk investment strategies aren’t a foreign concept but not necessarily one we would all jump at the opportunity to get involved in. A Texas-based investor is now seeking $100,000 compensation, claiming that the UBS recommended Yield Enhanced Strategy (YES) was a wholly unsuitable recommendation.

Unfortunately, this story is typical for many clients of the scheme. Another client claims to have been told that the scheme has no history of losses in the previous 17 years. This client has now lost $750,000 since investing in the scheme. Arbitrations records show that over $5 billion in assets was managed by the UBS team overseeing YES.

Jason Haselkorn, an investor lawyer (, said, “What’s also surprising here is that after the strategy failed in December 2018, many investors were encouraged to continue to “hang in there” but that appears to ignore the fact that this was a yield enhancement strategy and not a type of strategy that was ever likely to “snap back” and produce a near 20% return in the short term.”

Most investment portfolios, when managed correctly, can be a mechanism for steady returns over several years. However, there will always be an option to take on an increased risk for higher rewards. In this case, the investor soon found himself more than $80,000 out of pocket in less than 6 months.

In simplest terms, the YES investment strategy, which is also known as the Iron Condor Strategy, relies on trading S&P 500 index (SPX) options spreads. The risk and complexity associated with managing such trading is one that a conservative investor should be advised to avoid. The Iron Condor strategy relies heavily on low volatility and creates the biggest returns when there is little movement in the asset price.

The issue here is that UBS is purported to be advertising this strategy as a low risk to its clients resulting in several suits alleging misrepresentation, fraud, breach of duty, and negligence. In addition to this is the accusation of unjust enrichment as a result of revenues made by UBS and brokers through commission payments that have resulted in high profits as clients were losing thousands from their portfolio values. UBS is currently charging a management fee of up to 1.75% on all YES accounts. When many clients ask why this strategy is still being sold to new clients, the unfortunate answer is profit potential.  

Investigations on behalf of the previously mentioned clients, and many more now involved in a class-action lawsuit, have uncovered that the YES program was being run with very little regulation and oversight. With market volatility at such high levels of late this strategy has been significantly less profitable for UBS clients.

What is worse is that the product is managed in such a way that makes it incredibly difficult for a client to exit the scheme. A client has the option to exit only within a very small window, which is always before any trades have been made making it virtually impossible to know what that exit price would be. This is enough to discourage most from withdrawing from the scheme and has led to increased losses for many.

Regulators have had cause to cite UBS at least nine times for violations of securities law. It is also worth noting that across all arbitrations cases against top brokerage firms, UBS clients have the highest win rate. In 2017 alone the win rate for clients bringing cases against UBS was 58%. UBS has declined to make any public comment.

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