UBS To Pay $19.5M Over Notes Tied to Currency Index

UBS AG (UBS) has agreed to pay $19.5 million to resolve SEC charges accusing the firm of making misleading or false statements and omissions in offering materials for structured notes connected to a proprietary strategy for foreign exchange trading. The firm is accused of falsely stating to investors in the United States the structured notes linked to the V10 Currency Index with Volatility Cap were dependent upon a systematic and transparent strategy for currency trading that employed market prices to calculate the financial instruments that were underlying the index. The SEC said that UBS made undisclosed hedging trades, which lowered the index price by as much as 5%. The firm is settling without denying or admitting to the regulator’s findings.

About 1900 US investors purchased approximately $19M of structured notes connected to the index from December ’09 to November ’10. The SEC contends UBS did not have an effective procedure, policy, or process for making sure that the individuals mainly responsible for the offering documents for the notes in the US knew that UBS employees in Switzerland were taking part in practices that could hurt the price inputs for calculating the V10 Index. The firm also purportedly did not disclose that it took unwarranted markups on hedging trades, hedged trades with non-systemic spreads, and traded prior to certain hedging transactions.

Such unjustified markups led to market prices that were not used consistently for coming up with the V10 index. Also, UBS is accused of not disclosing that certain traders included spreads to the hedging traders’ prices. Because of this, said the SEC, the V10 index became depressed by about 5% and investors lost around $5.5M.

UBS will pay $11 million in disgorgement plus prejudgment interest- $5 million will go to investors who sustained losses-and a civil penalty of $8 million. It also agreed to cease and desist from future violations.

If you are an investor who has suffered losses because of the wrongdoing or negligence of a financial representative or a firm, contact our stockbroker fraud law firm today.

Other UBS Stories:
Read the SEC Order (PDF)

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