On July 19, 2021, UBS Financial Services Inc. (“UBS”) and the Securities and Exchange Commission (“SEC”) settled charges related to UBS’s failure to adopt and implement written policies and procedures reasonably designed to prevent unsuitable investments in volatility-linked-exchange-traded products (“ETPs”) between January 2016 and January 2018. As a result of UBS’s supervisory failures, financial advisors in UBS’s discretionary Portfolio Management Program (“PMP”) purchased and held an exchange-traded product called iPath S&P 500 VIX Short-Term Futures ETN (“VXX”) for their advisory clients for durations that were inconsistent with the purpose of the product, as described in the offering documents, and as described to UBS in a meeting with representatives of the issuer of VXX.
Without admitting to the SEC’s findings, UBS agreed to a censure, and disgorgement and prejudgment interest of $112,274 and a civil penalty of $8 million, which will be distributed to investors harmed by UBS’s conduct.
Advisory customers of UBS who have suffered losses due to VXX investments in their discretionary or “managed” accounts that have not been made whole should contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of your legal rights.
Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as UBS.
Securities and Exchange Commission Order
On July 19, 2021, the SEC filed a settled action against UBS for compliance failures relating to sales of a volatility-linked exchanged-traded product. According to the Order, the SEC’s investigation revealed the following:
- Beginning in at least early 2016, certain PMP FAs exercised their discretionary authority to purchase VXX for advisory clients and held the investment for lengthy periods, including hundreds of accounts that held VXX for over a year.
- VXX is designed to provide exposure to the implied volatility of the S&P 500 by replicating a strategy of continuously maintaining a rolling portfolio of one and two-month futures contracts on the CBOE volatility index (the “VIX”). The constant daily buying and selling of the VIX futures contracts generate roll costs in most market environments. As these roll costs are deducted from VXX’s returns, its value was likely to—and, in fact, during the Relevant Period, did—decrease when held for extended periods, even if the VIX remained flat or positive during that period.
- UBS failed to adopt and implement written policies and procedures that were reasonably designed to prevent the unsuitable use of VXX as a buy-and-hold investment for PMP advisory clients.
- Although UBS had controls and systems in place to monitor holding period risk for other products, it did not implement similar measures with respect to VXX.
- Although UBS adopted a 3% concentration limit on volatility-linked ETPs in PMP accounts, that policy addressed concentration risk and not the length of time VXX was held in an account.
- Additionally, UBS adopted written policies that required the firm to monitor PMP accounts for compliance with the concentration limit on a daily basis and take escalating actions if an account violated the limit, but UBS failed to implement this system of monitoring and enforcement.
- During the relevant period, approximately 1,882 PMP client accounts held VXX for extended periods, with hundreds of accounts holding VXX for over a year. The increased risk from the extended holding periods resulted in meaningful losses on their VXX investments.
- In October 2017, UBS made VXX an ineligible holding in PMP accounts. UBS prohibited further purchases of VXX and required that PMP accounts currently holding VXX exit those positions by January 2018.
How to Recover Financial Losses or Obtain a Free Consultation
If you have suffered investment losses with UBS or suspect other inappropriate activity occurred in your investment or retirement account, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at email@example.com or toll-free at (855) 430-4010 for a free and confidential review of your legal rights.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.