Claimants Lose Retirement Funds in Complex Options Trading Strategy
A retired couple is suing UBS Financial Services (UBS) after they sustained at least $800,000 in losses from investing in the firm’s Yield Enhancement Strategy (YES).
The investors contend that their UBS broker made misrepresentations and omissions when recommending this unsuitable investment strategy to them and discouraged them from leaving the YES program even as their losses mounted. Now, the investors are seeking up to $1,000,000 in damages, losses, and other costs.
Our UBS YES Strategy attorneys at Shepherd Smith Edwards and Kantas are representing these claimants in their investor fraud claim against the broker-dealer.
Couple Claims UBS Downplayed the Risks & Discouraged Them From Exiting YES Program
The claimants are a retiree couple in their late sixties, one of whom has an incurable and degenerative disability. They also are caregivers to two other elderly family members. It was their UBS broker who recommended that they invest in the firm’s YES Strategy.
Like so many other customers, the couple were told that the UBS YES Strategy program was a way for them to gain a marginally higher yield on their portfolio while taking on limited risks. This, however, was a gross misrepresentation.
In fact, the UBS Yield Enhancement Strategy is an aggressive investment strategy with an undisclosed high degree of leverage. It uses a complex options overlay strategy known as the iron condor strategy and is highly susceptible to huge losses during times of market volatility. This is exactly what happened at the end of 2018 when the CBOE Volatility Index reached its highest level in years, leaving many UBS customers who had no idea they were even exposed to that much risk with huge losses.
The claimants in our firm’s recently filed case sustained losses heavy losses in December 2018 as a result of that turbulence. Yet, like so many other UBS YES investors, UBS represented to them that this was a “black swan” event and that efforts were being made so that they would get back their losses within a few weeks.
Instead, their UBS YES account continued to suffer losses in 2019, even as the firm continued to charge them interest on what had become a negative balance and repeatedly discouraged them from leaving the Yield Enhancement Strategy program despite their growing concerns. In total, this retired couple has paid UBS Financial over $180,000 in fees plus margin interest.
Then, in early 2020, volatility again spiked in the markets as a result of the COVID 19 pandemic. Just as it had done in December 2018, the UBS YES program suffered dramatic losses. For the investors in our recently filed case, this essentially doubled their losses in this supposed safe way for them to achieve a marginally better return on their retirement portfolio.
The UBS YES reaction in February and March 2020 confirms that the UBS YES program is not “market neutral” as the firm represents in its marketing materials and that those who remain in the UBS YES program will continue to be subjected to large risks going forward.
What Are The Allegations Involved In This Claim?
In their brokerage firm fraud lawsuit, the claimants are making a number of allegations, including the following:
- Misrepresentations and omissions
- Unsuitable investment recommendations
- Breach of fiduciary duty
- Failure to properly supervise
- Breach of contract and warranties
- Abuse, neglect, and exploitation of elderly persons and disabled adults
- Negligence and gross negligence
- Unfair and deceptive trade practices
- Unjust enrichment
UBS YES Strategy: Profitable For The Brokerage Firm, Costly for Investors
UBS and its options traders ran the YES program with virtually no compliance oversight, inadequate– if any– risk controls, and no supervision. Many UBS YES customers who have contacted us have asked “Why does UBS allow this program to continue?” Sadly, the short answer to the question is money.
This strategy typically charges 1.75% on the “mandate” of an account. The “mandate” is the supposed amount of collateral from a UBS customer’s accounts that would be used to support the YES trading program.
The firm says it requires a minimum $1,000,000 “mandate”, but most clients appear to have a much higher one. Then, regardless of whether the full “mandate” is used, UBS charges up to 1.75% fee to manage the YES account. In a program that had billions under the “mandate”, this was wildly profitable for UBS.
Sadly, the YES program has not been similarly profitable to UBS clients. Instead, in times of market turmoil, especially steep losses in the S&P 500, the YES program has suffered losses significant losses.
Moreover, because the losses sustained are in options with a limited holding period, there is no chance for positions to recover. This contradicts the firm’s misleading claim that losses can be recovered when the markets “normalize.”
Also, the firm makes it very hard for investors to leave the YES program. Even though securities bought as part of the program are liquid, the firm restricts customers’ ability to liquidate their investments by only permitting them to put in an exit order during a certain window but does not make the trades until later.
This leaves customers without knowing what their exit price would be, which is further discouragement from exiting.
Contact Our Yield Enhancement Strategy Lawyers
Unfortunately, UBS is continuing to tout this strategy and encourage its clients to remain invested in the UBS YES program, notwithstanding that the firm is now fully aware that the risks of this investment program far outweigh the benefits.
SSEK Law Firm is fighting for UBS Yield Enhancement Strategy investors throughout the US to recoup their losses as a result of stockbroker fraud and brokerage firm misconduct. Contact us today.