The Vernon Litigation Group is currently pursuing FINRA arbitration claims against UBS Financial Services, Inc. (CRD #8174). The claims arise out of V10 structured note wrongdoing by UBS in connection with accounts in Naples, Florida, but which also involved issues in Utah, throughout the U. S., and London, England. In fact, news media in the U.S. and Europe are now reporting that UBS is currently being investigated by civil and criminal authorities over the sale of the V10 structured notes.
The specific product that is the subject of the claims currently being pursued in FINRA arbitration by the Vernon Litigation Group is UBS AG Performance Security Linked to the UBS V10 Currency Index with Volatility Cap (“V10”). The claims assert improprieties relating to representations about V10 and the returns generated by V10. One of those misrepresentations was the fact that UBS falsely represented that the U.S. dollar was not part of the V10 eligible currencies. Moreover, due to the misrepresentations, the financial markets were in a state of confusion regarding the V10 and, as a result, had trouble pricing the V10 (in essence there were two prices in the market for the V10, depending on the type of information used to price it).
Huge Financial Institutions Turn into Sales Machines
We find it unconscionable that huge financial institutions market “objective advice” and trust, but instead turn themselves into manufacturing and sales machines that dump products on their clients that are literally designed to profit the financial institution—and the benefit to the investor is simply a by-product and a sales tool. Structured products such as UBS’s V10 are great examples of this questionable practice.
More specifically, the FINRA case we filed on behalf of a V10 investor alleges that UBS made the following representations about V10:
- V10 was a liquid instrument similar to ETFs.
- V10 offered complete capital preservation with the issue price of $10/share being the lowest it could go (i.e., capital protection).
- V10 was the ideal instrument for investors who wanted capital preservation but desired some way to take advantage of foreign currency volatility.
Pending FINRA Case Makes Matters Worse
The impropriety surrounding the sale of V10 was made even worse in the pending FINRA case because the advisor recommended the use of a UBS low-interest rate credit facility called the UBS Premier Variable Credit Line (“UBS loan”) through UBS Bank USA, Inc. to fund the investment in V10. Unbeknownst to the client, UBS’s advice was effectively circumventing both industry rules (including UBS’s own rules) and law that restricts the use of such borrowed funds for said purposes, according to the claim.
The claim also states that when the investor requested that his V10 investment be sold, the sale did not occur. Instead, UBS responded by saying it would be contacting UBS Bank USA (i.e., the institution through which UBS issued the significant loan to buy the V10) to demand repayment of the loan within 10 days. If UBS Bank USA did not receive full repayment of the loan by the set deadline, UBS would exercise UBA Bank USA’s right to forcefully liquidate the client’s portfolio for the benefit of UBS Bank USA.
Allegations of Gross Misconduct and More Against UBS
The Vernon Litigation Group has alleged that this is far more than a negligence case. The claim alleges a pattern of gross misconduct on the part of UBS, including the creation and misleading marketing of a complex and opaque structured product. This is in addition to the grossly inappropriate recommendation of a loan from a parent company to purchase a UBS structured product (V10). The Vernon Litigation Group is also investigating other improprieties by UBS in connection with this FINRA arbitration claim that may have broader implications. For these reasons (among other reasons outlined in the pending FINRA case), the Vernon Litigation Group is seeking punitive damages.
As stated earlier, it now appears that some of the allegations being made by the Vernon Litigation Group are part of the investigation by civil and criminal authorities in the United States. In fact, news media outlets are reporting that the U.S. Department of Justice is examining whether UBS – as well as Barclays and others – neglected to disclose all profits from currency trades that should have been part of V10’s returns for investors. One Bloomberg article focused on the fact that numerous authorities around the world are probing the $5.3 trillion-a-day currency market. V10 and the other structured products involved in the investigation are based on what is known as the “carry trade.” The carry trade is a type of arbitrage and involves borrowing using a low-yielding currency and investing using a higher-yielding one, earning the difference in the rates or spread.
With respect to V10 specifically, the authorities also seem to be investigating whether certain investors were allowed to shift their positions in a volatile currency market. Vernon Litigation Group has also been investigating this issue. One news story referenced the findings of The Swiss Financial Market Supervisory Authority (FINMA) that UBS had inadequate risk management controls and compliance in its foreign currency trading, which led to a $139 million fine against UBS this past November.
SEC Demands More Transparency
We find all this especially troubling given the following public representation by UBS in a section of a publicly available document entitled “Better information, more transparency.” In this section, UBS acknowledges that the structured product market is a “very confusing product jungle” and that “a product’s risk can change quickly over its term.” With respect to this latter point, it makes you wonder why UBS would promote this type of product to investors—given its very limited and artificial market. In this publicly available document, UBS also acknowledges that “[i]nstead of throwing a product on the market in a flurry of advertising hoopla, in the hope that as many clients as possible will bite, the process should actually work the other way around.”
Structured notes have been around since the 1980s, but for years sales were limited to institutional investors. With the recent surge in sales to retail investors, the Securities and Exchange Commission has been demanding more transparency and is apparently now investigating UBS’s profiteering and abuse from that lack of transparency.
In the last five years, Vernon Litigation Group has filed over $10 million in claims against UBS alone related to the deceptive sale of structured notes. UBS does not discriminate in the sale of these products because victims represented by the Vernon Litigation Group include everyone from octogenarians, nurses, schoolteachers, and ministers to trial lawyers and ultra-high net worth entrepreneurs.
About The Author
Chris Vernon, founding partner of the Vernon Litigation Group (with offices in Naples, Orlando, and Atlanta), advocates for the rights of investors throughout the United States and abroad—both in and out of the courtroom and arbitration hearing room. Mr. Vernon currently holds an AV rating by Martindale-Hubbell and has been repeatedly recognized by his peers in publications such as Super Lawyers and The Best Lawyers in America. Mr. Vernon has spoken at both national securities and national trial attorney conventions and has also conducted continuing education in the U.S. and abroad for securities regulators, CPAs, CFAs, CFPs, investment professionals, board-certified business litigation lawyers, and board-certified trust and estate lawyers.
Contact Vernon Litigation Group Today
For more information on whether you have a claim involving a structured product, contact the Vernon Litigation Group at (239) 319-4434 or Toll-Free at 877-649-5394 or email mailto:info@vernonlitigation.com