UBS Financial Services (UBS) recommended the Yield Enhancement Strategy (YES) to its high-net-worth customers. UBS financial advisers across the country recommended the high-risk program to many high-net-worth clients and presented YES as a safe way to earn additional income by using existing assets at UBS as collateral.
Erez Law believes that the UBS YES strategy was, in fact, an aggressive options strategy. Unfortunately, many UBS brokers did not adequately understand and/or disclose the risks of this type of high-risk investment program.
Investors seeking recourse for losses in YES investments must file disputes in FINRA arbitration. Investors have retained Erez Law to file FINRA arbitration claims against UBS to recover their losses.
Many clients come to us at Erez Law because we specialize in recovering investment losses. We use considerable legal resources to help investors who trusted reckless and unethical brokers. We have filed many FINRA arbitration cases against large brokerage firms, including Merrill Lynch, Morgan Stanley, and UBS, holding these firms accountable for dishonest investment advisory practices, unsuitable recommendations, misrepresentation, and misrepresentation over-concentration in investments and strategies.
If you invested in YES without understanding the risks associated with your investment, you might be able to recoup your losses. Our financial securities attorneys team has FINRA arbitration experience, and we know how to hold brokerage firms and advisers liable for their indiscretions. Contact our firm by calling (888) 840-1571 to speak with one of our attorneys about filing a UBS YES strategy lawsuit.
UBS YES Investment Losses and Decline
UBS offered the high-risk YES program to its customers whose net worth was at least $5 million. According to claims filed by Erez Law, UBS’s YES program was represented to investors as a low-risk strategy that allowed them to generate enhanced yield, all without requiring investors to deposit additional funds into their UBS account.
Erez Law has alleged that contrary to UBS’s presentation of YES, the strategy actively engaged in market timing and taking directional positions on the market and suffered significant losses. The YES program generated substantial fees for UBS. UBS may have received an annual investment advisory fee of 1.75% on its customers’ mandate in YES.
UBS presented its YES program as employing a “market neutral” options strategy known as an “iron condor,” named for the strategy’s profit/loss diagram. However, it is alleged that this was not the case and posed a significant risk for investment portfolios, especially those that were over-concentrated in these securities.
UBS’s marketing materials emphasized that the YES program minimized the risk of losses by providing investors with downside protection in market volatility. It also noted that UBS would “manage risk” and “minimize losses” by hedging and actively monitoring the position. UBS also represented to its clients that the YES program had “excellent risk metrics” and would allow its clients to increase returns while at the same time reducing risk.
UBS’s YES program involves using the equity in an investor’s UBS account to pursue a purportedly low-risk options strategy involving a combination of put and call options on the S&P 500 index. The S&P 500 is a stock index based on the 500 largest companies whose stock is listed for trading on the NYSE or NASDAQ. This strategy involves writing short “put” options followed by two extended, deeper options. This is a strategy that should only be for sophisticated investors that seek a highly complex options strategy.
An iron condor strategy seeks to generate income by selling “out-of-the-money” put-and-call options contracts while hedging against losses through the purchase of further out-of-the-money put and call options on the same asset to limit the investor’s downside risk. The iron condor strategy is intended to be a market-neutral strategy, which means that it is not a directional wager that the underlying asset price will increase or decrease in value. Instead, the strategy seeks to profit from a relative lack of volatility in the price of the underlying asset.
In other words, the investor is betting that the underlying asset’s price will remain within a specified trading range, allowing all of the options to expire worthlessly. At this time, the investor retains the premiums received from the sale of the options (minus the cost of purchasing the options that were used to limit the downside exposure). If the price of the underlying asset increases or decreases significantly, the purchased put or call options would provide a maximum limit to the investor’s downside risk. In the case of UBS’s YES program, UBS’s program advisory fees would also reduce the investor’s profits.
UBS YES performed when there was little market volatility. However, when the stock market faced times of volatility, the strategy caused investment losses. Unfortunately, it is alleged that UBS brokers did not adequately disclose the risks associated with this type of high-risk investment.
Investors in UBS YES sustained significant losses. In December 2018, YES declined by -13.5% and returned -18.65% in 2018. In 2019, YES declined by -2.17%. In the first half of 2020, YES declined by -13.52%. Erez Law believes that these losses and the source of the losses are contrary to the way UBS represented it would manage the program.
The UBS YES program grew to between $5 and $6 billion in assets under management.
Merrill Lynch, Credit Suisse, Morgan Stanley, and other brokerage firms across the country offered similar investment strategies.
SEC Settlement with UBS and SEC Findings
In June 2022, UBS Financial Services Inc. reached a $25 million settlement with the Securities and Exchange Commission (SEC) related to the company’s YES program, which was marketed between February 2016 and February 2017 to approximately 600 investors. The settlement included disgorgement for $5.8 million, prejudgment interest of $1.4 million, and a civil penalty of $17.4 million that will be distributed to harmed investors.
According to the SEC order, UBS Financial Services Inc. “did not provide its financial advisors with adequate training and oversight in the strategy, and although UBS recognized and documented the possibility of significant risk in YES investments, it failed to share this data with advisors or clients. As a result, the order finds that some of UBS’s advisors did not understand the risks and could not form a reasonable belief that the advice they provided was in the best interest of their clients. When investors suffered losses, many of them and their financial advisors expressed surprise and closed their YES accounts.”
Recovering Losses Through FINRA Arbitrations
Investors in the United States have filed FINRA arbitration claims against UBS for investments made in YES investments on the advice of their brokers. Many of these investors were not adequately warned about the high-risk nature of the investments and have suffered severe losses. Investors may have a claim against the brokerage firm based on misrepresentation, unsuitability, breach of fiduciary duty, and state and federal securities laws.
A broker must have reasonable grounds for each recommendation made to investors, considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance. In addition, before a financial advisor recommends security, the financial advisor must conduct due diligence, investigating the security facts, to confirm that it is suitable for the customer. The suitability of an investment for a particular individual is at the center of the investment process and one of the essential duties owed by a broker to the customer. A firm may be held liable for its broker’s failure to recommend suitable investments to its customers.
In addition, according to FINRA Rules, member firms are responsible for supervising a broker’s activities when the broker is registered with the firm. Therefore, the brokerage firm may be liable for investment or other losses suffered by brokers who worked for the firm.
Erez Law Has Obtained Outstanding Results for its Clients
Erez Law filed more than 20 FINRA arbitration claims on behalf of UBS Financial Services Inc. customers nationwide for YES investment losses, including:
- Erez Law Files Claims for UBS Financial Services YES Investment Losses with Broker Jose Cornide
- Erez Law Files Claim on Behalf of Former Client of Christopher Aitken and Ken Tonning for UBS YES Investment Losses
- Erez Law Files Claim for UBS Financial Services YES Investment Losses with Broker Allan Klenke
Erez Law Recent UBS YES Wins
To date, the securities fraud attorneys at Erez Law have tried and won four FINRA cases against UBS Financial Services Inc. for YES losses, including:
In May 2022, Erez Law won a monumental $3.8 million award, including the clients’ losses of $2,896,972 and $965,657 in attorney’s fees. The claim was related to the unsuitable nature of the YES investment for the client’s risk tolerances and investment objectives.
In June 2022, Erez Law won a $1.34 million award that included $475,482 in compensatory damages, $500,000 in punitive damages, $325,161 in attorney’s fees, and $41,475 in costs. The complaint was related to the recommended speculative managed account options strategy, which was unsuitable for the Claimants.
In June 2022, Erez Law won a FINRA arbitration against UBS Financial Services Inc. on behalf of a former client who sustained investment losses due to brokers who misled clients who didn’t understand the risky UBS YES program. The clients were awarded $687,403 in compensatory damages and prejudgment interest, $58,644 in costs, and $229,134 in attorneys’ fees, for a total award of $975,606.
In June 2022, Erez Law won a $1.1 million award, including $900,000 in compensatory damages, $56,717 in costs, and $225,000 in attorney’s fees. The complaint was regarding negligence and negligent supervision related to the managed-account options strategy with UBS’ YES.
Collateral Yield Enhancement Strategy (CYES) Investment Fraud
Did your Merrill Lynch financial advisor recommend you invest in a Collateral Yield Enhancement Strategy (CYES) and not adequately disclose the risk associated with this investment? The CYES is managed by Harvest Volatility Management, LLC. Merrill Lynch brokers across the country sold CYES strategy investments that resulted in significant losses for their clients. The CYES strategy was a high-risk option investment strategy. Investors Have Recourse to Recover Losses in YES Investments
Contact Us for a Free Consultation
If you have experienced investment losses due to investing in the UBS YES or Merrill Lynch CYES, we are here to help. We are not afraid of taking on corrupt firms and can and will combat some of the largest brokerage firms in the United States. Count on our experience to successfully take you through the FINRA arbitration process.
Please call us at (888) 840-1571 for a free consultation or complete our contact form to investigate your recourse for losses in YES and CYES investments. Erez Law is a nationally-recognized law firm representing individuals, trusts, corporations, and institutions in claims against brokerage firms, banks, and insurance companies. If you have more questions about investment fraud, you can visit our securities fraud frequently asked questions page or contact our firm to speak with one of our qualified fraud attorneys.