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Erez Law Files Multiple Claims for UBS Financial Services YES Investment Losses

Posted on Monday, August 19th, 2019 at 8:10 pm    

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Erez Law recently filed several FINRA arbitration claims against UBS Financial Services Inc. for Yield Enhancement Strategy (YES) program losses. 

It is alleged that UBS’s YES program was represented to investors as a low-risk strategy that allows investors to generate enhanced yield while reducing risk, all without requiring investors to deposit additional funds into their UBS account. 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. UBS touted its YES program as employing a “market neutral”  options strategy known as an “iron condor,” named for the strategy’s profit/loss diagram.

An iron condor strategy seeks to generate income through the sale of “out-of-the-money” 

put and call options contracts, while providing 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 is not a directional wager that the price of the underlying asset will increase or decrease in value, but rather the strategy seeks to profit from a relative lack of volatility in the price of the underlying asset. In other words, the investor is wagering that the underlying asset’s price will remain within a specified trading range, allowing all of the options to expire worthless, at which point 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.) In the event 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, the investor’s profits would also be reduced by UBS’s YES program advisory fees.  

In other words, the investor is wagering that the underlying asset’s price will remain within a specified trading range, allowing all of the options to expire worthless, at which point 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.) In the event 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, the investor’s profits would also be reduced by UBS’s YES program advisory fees.

Erez Law’s client alleges that UBS made numerous representations designed to communicate the safety of the YES program including but not limited to:

  • Diversification—Because the strategy has a limited correlation with the market or a single stock position, the strategy may provide portfolio diversification.
  • Fixed Downside—Each position is fully hedged at time of implementation through purchasing protection (i.e. put options)

UBS’S marketing materials emphasized that the YES program purportedly minimized the risk of losses by providing investors with downside protection in the event of market volatility and that UBS would “manage risk” by hedging and actively monitoring positions.

The YES strategy did actively engage in market timing and taking directional positions on the market and suffered significant losses as a result. One possible and most likely explanation for UBS’s motivation for recommending the YES program is the significant fees it generated for UBS. UBS received an annual investment advisory fee of 1.75%. It is alleged that UBS breached its fiduciary duty by placing its interests before those of their customer, amongst other things.

It is alleged that UBS failed to adequately disclose the significant risks associated with the YES program. UBS failed to adequately disclose that the YES program was often not a market neutral strategy. UBS failed to adequately disclose that market volatility was often not the major determinant of the YES program’s profitability. UBS failed to adequately disclose that the client was at risk of losing a significant percentage of his funds invested in the YES program.

Additionally, because the YES program involves the use of leverage, investors in the YES program found themselves with margin balances and owing money to UBS when the YES program suffered significant losses. 

Erez Law Files Claim on Behalf of Former Client of Eric Wittenberg for UBS YES Investment Losses

In May 2020, Erez Law filed a FINRA claim against UBS Financial Services in connection with its broker Eric Wittenberg. The Erez Law client alleges that Wittenberg recommended he invest in the YES program and due to those recommendations he suffered significant losses. 

The Erez Law client was retired and interested in reducing his allocation to equities as well as increasing his fixed income allocation in order to reduce risk and generate additional income. The client explained that he relied in part on the income generated by his securities investments to meet his living expenses. The funds that the client eventually entrusted to Wittenberg represented the vast majority of his liquid net worth and is capital that he could not readily replace. Regrettably, Wittenberg recommended a speculative and unsuitable proprietary investment strategy which it misrepresented as a safe income-generating strategy with unacceptable results. 

Wittenberg recommended the client enroll in UBS’S high risk and unsuitable Yield Enhancement Strategy (YES) program. UBS was targeting high net worth investors to whom to sell its lucrative and fatally flawed strategy. 

It is alleged that Wittenberg represented that YES had a stellar track record over 12 years and that downside risk was limited to a short term decline of 1-2%. Based on Wittenberg and UBS’S representations and recommendations, the client invested in the UBS YES investments. 

When the client noticed the account declining in value he contacted Wittenberg to express his significant concerns. The client was interested in terminating the YES program. Wittenberg recommended against it and represented to the client that increased volatility would lead to higher options premiums and a recovery in the YES program. Wittenberg also represented to the client that he and many of his clients were invested in YES, that he is not selling, and that he is not recommending that his clients sell. Regrettably, the client did follow Wittenberg’s recommendation to hold the investment in YES to his severe detriment. 

It is alleged that Wittenberg did not fully appreciate the risks and characteristics of the very investment he recommended and sold to the Erez Law client. The client incurred significant losses in the UBS YES program. Contrary to Wittenberg’s representations, the YES program sustained staggering losses in December 2018 when volatility increased. 

Erez Law Files Claim on Behalf of Former Client of Christopher Aitken and Ken Tonning for UBS YES Investment Losses

In January 2020, Erez Law filed a FINRA claim against UBS Financial Services in connection with its brokers Christopher Aitken and Ken Tonning. The Erez Law clients, who are an elderly married couple, allege that Aitken and Tonning recommended the clients invest in the YES program and suffered significant losses. 

According to the claim, the husband informed Aitken and Tonning that he was approaching retirement and seeking to invest his entire portfolio in conservative and low-risk investments that would preserve his irreplaceable retirement savings. Aitken assured the clients that he would employ a conservative and low-risk investment strategy that would generate a modest amount of income while preserving the couple’s irreplaceable principal. Aitken told the couple that “you’ve hit a home run” and therefore “there is no need to be so risky.” Aitken assured the clients that under his management, his assets would be invested conservatively. Regrettably, Aitken, and Tonning and UBS recommended a speculative and unsuitable investment strategy which they misrepresented to the couple as a conservative and low-risk strategy that would generate income while preserving their principal. In reality, it was just the opposite. 

Based upon Aitken’s representations, the couple agreed to become customers of Aitken and Tonning and Merrill Lynch. In May 2017, Aitken/Tonning began working at UBS and solicited the couple to transfer their accounts to Aitken and Tonning and UBS, which they did. 

It is alleged that Aitken and Tonning recommended the couple enroll in UBS’S high risk and unsuitable Yield Enhancement Strategy (YES) program. UBS was targeting high net worth investors to whom to sell its lucrative and fatally flawed strategy. On multiple occasions, the clients were provided with marketing materials that reinforced the notion that YES was a safe and conservative investment.  Consistent with UBS’S marketing materials, Aitken and Tonning represented to investors that the YES program was a conservative, safe, and low-risk investment strategy that provided consistent returns. Additionally, it is alleged that Aitken and Tonning portrayed the YES program as a low-risk way to provide supplemental income and diversify the couple’s conservative portfolio. 

According to the claim, Aitken and Tonning represented to investors that even in the event of unfavorable market conditions, the YES program provided “upside and downside protection” and employed hedging options designed to “mitigate downside risk” and “limit exposure to significant upside or downside market moves.” In reality, this was grossly misleading and untrue. n fact, Aitken and Tonning represented to investors that even in the event of unfavorable market conditions, the YES program provided “upside and downside protection” and employed hedging options designed to “mitigate downside risk” and “limit exposure to significant upside or downside market moves.” In reality, this was grossly misleading and untrue. 

Regrettably, the couple incurred significant losses in the UBS YES program. 

Erez Law Files Claim on Behalf of Former Client of Jose Cornide for UBS YES Investment Losses

In August 2019, Erez Law filed a FINRA claim against UBS Financial Services in connection with its broker Jose Cornide. The customer alleges that Cornide recommended the client invest in the YES program and suffered significant losses. 

According to the claim, the couple informed UBS and Cornide that they could not afford to lose their irreplaceable savings entrusted to UBS. The clients wanted to preserve their principal and were not interested in high-risk investment strategies at UBS. Cornide assured the couple that the investments and strategies he recommended were consistent with their desire to avoid high-risk investments and strategies at UBS Financial Services. Regrettably, UBS recommended a speculative and unsuitable investment strategy which it misrepresented as a sage income-generating strategy.

It is alleged that Cornide recommended the couple enroll in UBS’S high-risk and unsuitable YES program. UBS was targeting high net worth investors to whom to sell its lucrative and fatally flawed strategy. 

Consistent with UBS’s marketing materials, Cornide represented to investors that the YES program was a great investment vehicle that would allow the couple to generate increased returns with “de minimis” downside risk, all while requiring no additional investment of capital. In fact, it is alleged that Cornide represented to investors that even in the event of unfavorable market conditions,  the YES program would “protect downside” and only suffer “minimal losses” of “a few thousand dollars.” This was grossly misleading and untrue.

According to the claim, UBS represented to the couple that UBS’s YES program had “excellent risk metrics and downside protection” and would allow the clients to increase returns while at the same time reducing risk. 

Contrary to UBS’s representations, the YES program it recommended involved significant risk of loss of principal and was not a market neutral strategy. Furthermore, the returns were not based on time decay in options prices or the difference between realized volatility and implied volatility as claimed by UBS. The YES strategy actively engaged in market timing and took directional positions on the market and suffered significant losses as a result. 

Cornide has been registered with UBS Financial Services Inc. in Coral Gables, Florida since 2004.

Erez Law Files Claim on Behalf of Former Client of Jose Cornide for UBS YES Investment Losses

In August 2019, Erez Law filed another FINRA claim against UBS Financial Services in connection with its Jose Cornide. The customer alleges that Cornide recommended the client invest in the YES program and suffered significant losses. 

The Erez Law client, who was a longtime client of Cornide and UBS Financial Services Inc., alleges in the newly filed FINRA claim that he communicated to UBS that he was approaching retirement age and generally wanted to be more conservative with his investments. The client was primarily interested in investing in high-quality fixed-income investments that would preserve his capital and generate a modest amount of income. Regrettably, UBS recommended a speculative and unsuitable investment strategy which it misrepresented as a safe income-generating strategy with unacceptable results.

Erez Law alleges that UBS recommended the client enroll in UBS’s high risk and unsuitable YES strategy. UBS was targeting high net worth investors to sell its lucrative and fatally flawed strategy.

It is alleged that Cornide represented to the client that the YES program was a great investment vehicle that would allow the client to generate increased returns with “de minimis” downside risk, all while requiring no additional investment of capital. In fact, it is alleged that Cornide represented to the client that even in the event of unfavorable market conditions, the YES program would “protect downside” and only suffer “minimal losses” of “a few thousand dollars.” Erez Law alleges that this was grossly misleading and untrue.

It is also alleged that UBS represented to the client that UBS’s YES program had “excellent risk metrics and downside protection” and would allow the client to increase his returns while at the same time reducing risk.

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.