Skip to main content

SEC Charges UBS With Supervisory Failures in Sale of Complex Products to Retail Investors


Washington D.C., Sept. 28, 2016 —

The Securities and Exchange Commission today announced that UBS Financial Services has agreed to pay more than $15 million to settle charges that it failed to adequately educate and train its sales force about critical aspects of certain complex financial products it sold to retail investors. 
The SEC’s order finds that UBS failed to develop and implement policies and procedures reasonably designed to educate and train UBS registered representatives in connection with the sale of reverse convertible notes (RCNs) so that they could form a reasonable basis to make suitable recommendations.  RCNs are complex securities that feature embedded derivatives whose performance is driven by the concept of implied volatility.  Without adequate education and training, certain registered representatives made unsuitable recommendations in the sale of RCNs to certain retail customers in light of their investment profiles.  UBS sold approximately $548 million in RCNs to more than 8,700 relatively inexperienced retail customers. 
“We can now analyze literally hundreds of millions of trading records using sophisticated coding techniques that allow us to build platform wide cases rather than cases built investor by investor.  We found that UBS dropped the ball by allowing the sales of complex financial products to retail investors without adequately training its sales force,” said Andrew Ceresney, Director of the SEC Enforcement Division.
Michael J. Osnato, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, added, “When it comes to complex financial products, investors are especially dependent upon firms making sure their financial advisors comprehend the potential risks and rewards of the investments they are recommending.  The SEC takes a dim view of firms that fall short in their obligations.”
The SEC’s order finds that UBS failed reasonably to supervise its registered representatives within the meaning of Securities Exchange Act Section 15(b)(4)(E), which resulted in violations of Section 17(a)(3) in the offer and sale of RCNs.   UBS consented to the order without admitting or denying the findings.  The order censures UBS and requires payment of $8,227,566 in disgorgement plus $798,316 in interest and a $6 million penalty.
The SEC’s investigation was conducted by Jonathan B. Taylor, Jennifer S. Brannan, and Kapil Agrawal, and the case was supervised by Mr. Osnato and Reid A. Muoio of the Complex Financial Instruments Unit, which received assistance from Andrew Shelton, Matthew J. Jenkins, and Atif Shameem of the Risk Analysis Examination team within the SEC’s Office of Compliance Inspections and Examinations.


Return to Top