UBS to pay $15 million to settle charges of poorly trained sales force

By Wendy Van Sickle

Columbus, Ohio, Sept. 28 – UBS Financial Services Inc. agreed to pay more than $15 million to settle charges that it did not adequately teach and train its sales force about key aspects of reverse convertible notes sold to retail investors, the Securities and Exchange Commission said Wednesday in a press release.

The SEC’s order found that “UBS failed to develop and implement policies and procedures reasonably designed to educate and train UBS registered representatives in connection with the sale of reverse convertible notes [RCNs] so that they could form a reasonable basis to make suitable recommendations,” the release states.

As a result, certain registered representatives made “unsuitable” recommendations when selling the securities, which have embedded derivatives whose performance is driven by implied volatility, the SEC said.

UBS sold about $548 million in RCNs to more than 8,700 relatively inexperienced retail customers, according to the commission.

“We can now analyze literally hundreds of millions of trading records using sophisticated coding techniques that allow us to build platform wide cases rather than cases built investor by investor. We found that UBS dropped the ball by allowing the sales of complex financial products to retail investors without adequately training its sales force,” Andrew Ceresney, director of the SEC Enforcement Division, said in the release.

“When it comes to complex financial products, investors are especially dependent upon firms making sure their financial advisers comprehend the potential risks and rewards of the investments they are recommending. The SEC takes a dim view of firms that fall short in their obligations,” Michael J. Osnato, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, added.

UBS consented to the SEC’s order without admitting to or denying the findings. UBS will pay $8,227,566 in disgorgement plus $798,316 in interest and a $6 million penalty.

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