UBS Prevails Against Wealthy Investors in ‘YES’ Options Decision
(This story was updated on Nov. 20 to reflect that UBS has won two YES strategy arbitrations and to include a statement from the bank.)
UBS Wealth Management has prevailed in the second of scores of fraud claims brought by wealthy clients whose advisors enrolled them in an options-spread strategy dubbed YES (Yield Enhancement Strategy) that went awry during volatile market periods.
“We’re disappointed in this particular result but are confident that other arbitration panels will find that UBS misrepresented the strategy, which clients and many advisors did not understand,” said Jake Zamansky, a New York City lawyer who represented the Brodys and is shepherding about 70 of about 100 other YES strategy cases, some of which seek more than $10 million from UBS.
The YES strategy was devised by a New York team of advisors led by Matthew Buchsbaum, who joined UBS in 2015 from Credit Suisse Securities, where the options overlay strategy was originated. It was designed as a market-neutral strategy that could “generate additional cash flow from lower-yielding assets” through the sale and purchase of S&P 500 index option spreads, according to a UBS marketing brochure. It had a “defined maximum loss” that would be limited to premiums paid as well as assured income from collecting premiums for writing options, according to reports issued to investors
Returns in YES portfolios plummeted by about 20% in 2018, however, when the S&P 500 tanked in December of that year, and had deteriorated by more than 40% by early this summer, according to UBS reports to investors.
The Buchsbaum team marketed YES in roadshows to UBS advisors as a conservative hedge strategy, raising $6 billion from about 1,500 clients in 2017 and 2018 through about 350 advisors, according to Zamansky and two other plaintiffs’ attorneys. The team split fees 50-50 through joint-rep accounts with the advisors in the field, about 100 of whom had previously worked at Credit Suisse, the lawyers said.
Buchsbaum, who is a nephew of former Lehman Brothers Chief Executive Richard Fuld, was not a defendant in the arbitration. His BrokerCheck record includes 29 customer complaints since April 2018, including one seeking $16 million and two $10 million apiece.
UBS had initially sought to expunge the Brody complaint from Buchsbaum’s regulatory records, but earlier this month withdrew the request, according to the award document. Buchsbaum declined to comment.
“We’re pleased that the arbitrators agreed that the detailed risk disclosures the customers executed in writing proved their awareness of the risks associated with this yield enhancement strategy,” UBS spokesman Huw Williams said in an emailed statement late Friday.
The Brody decision was the second YES arbitration that has been completed, and the second decided in UBS’s favor. A divided arbitration panel in mid-October denied a complaint against UBS filed in New York by the Amanda Straight Revocable Trust that sought up to $1.5 million in compensatory damages plus unspecified punitive damages and a disciplinary referral to Finra about the firm and two of its brokers.
Two of the three arbitrators in the Straight Trust case ruled in their explained decision that evidence presented by UBS “demonstrated that the options strategy at issue was suitable for the Claimant, and that Claimant understood the risk involved and was capable of assuming that risk.” The third panel member found that brokers Andrew Wittenberg and Wendy Holmes, who were not directly named as respondents, had “failed to meet their obligations” under two Finra suitability rules regarding options investments and under their fiduciary obligations as investment advisors.
The brokers were not members of Buchsbaum’s team but had also joined UBS in late 2015 from Credit Suisse after the latter said it was shuttering its U.S. brokerage business. The arbitrators, all of whom were designated “public” representatives, ruled 2-1 that Wittenberg and Holmes can ask a court to expunge the Straight Trust complaint from their records despite the objections of their client.
The brokers and Seth Lipner, the Garden City, NY, lawyer who represented the Straight Trust, could not immediately be reached for comment.
The Buchsbaum team encouraged investors to ride out the periods of volatility that were upsetting the options spread strategy, but the initial $6 billion of assets invested has fallen to under $1.5 billion due to losses, fees and withdrawals, according to Zamansky. UBS has not actively marketed the strategy since early 2019, he said.
The arbitrators in the Brody case did not explain their decision. In addition to rejecting all damage claims, they assessed almost $19,000 of the $21,825 of fees for 21 hearing sessions to the claimants. Arbitration panels typically split such fees between claimants and respondents, as did the panel in the Straight Trust case.
Zamansky and other lawyers said the biggest hurdle to their arguments of unsuitability and misrepresentation is that investors signed documents that have boilerplate disclosure about strategy risks.
“UBS does not guarantee the performance of any investment, including but not limited to the YES, and cannot be held responsible for market fluctuation,” Labinot Berlajolli, a lawyer representing the broker-dealer wrote to Rogge Dunn, a Dallas lawyer who represents an investor in another claim. “YES, like any investment strategy, carries risk, a point which was disclosed when [client’s name] first enrolled. In addition, UBS’s investment recommendations are good faith opinions based on the public market information available at the time.”
Dunn said his client’s losses were exacerbated by her advisor’s encouraging her to borrow money against her portfolio to invest in the YES strategy.