UBS Financial Services paid over $15 million to settle SEC charges that it improperly sold risky, complex products to investors, the commission announced. In pursuing the charges, the SEC said that it used for the first time against a broker-dealer a coding technique that allows it to analyze data across an entire trading platform to identify potential unsuitable transactions to particular investors.
The case involves the sales of about $548 million in reverse convertible notes to 8,743 UBS retail customer between 2011 and 2014. The investments are debt obligations linked to underlying stocks that pay a higher-than-normal interest rate because they use embedded derivatives linked to the volatility of the base stock. The SEC alleged that the investors who purchased the products did not comprehend their risks, nor did the UBS registered representatives who sold them.
“This inadequate training and education led to the unsuitable recommendations of RCNs to certain of the customers who had identified to UBS modest reported income and net worth, primarily moderate or conservative investment objectives, and some of whom were retired,” the SEC order states.
UBS will pay $8.2 million in disgorgement, a $6 million penalty and $798,316 in interest.
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