Articles Posted in UBS Financial Services

Thumbnail image for ubs building.jpgOn December 20, 2012, a class action complaint was filed on behalf of all investors who purchased or held the UBS Willow Fund L.L.C. at any time after January 1, 2008. The matter of Ken Boudreau vs. UBS Willow Management L.L.C, UBS Alternative and Quantitative Investments L.L.C, UBS Fund Advisor, L.L.C., Bond Street Capital L.L.C, Sam S. Kim, George W. Gowen, Stephen H. Penman, Virginia G. Breen and Meyer Feldberg was filed in the U.S. District Court for the Southern District of New York. The class action complaint alleges that the UBS Willow Fund made material false and misleading representations and omissions that were communicated to investors through the fund’s offering materials and quarterly summaries. As alleged in the complaint, the Willow Fund fundamentally changed its stated investment strategy in January 2008 and began aggressively trading in credit default swaps (“CDS”) without disclosing this fact to investors. Eventually, in October 2012, investors were notified that the fund was liquidating primarily because it had suffered significant losses from trading in CDS. The class action seeks damages in excess of $200 million.

In addition to recovering losses through a class action, investors who have suffered significant losses should fully explore their other legal options, including the filing of a securities arbitration claim directly against their financial advisor. Individuals with meaningful claims can often obtain a much larger potential recovery through arbitration. See related blog post: Securities Arbitration vs. Class Actions: Which is More Financially Rewarding?

ubspic.jpgSteven Kobayashi, a former UBS Financial Services Advisor in Walnut Creek, California, has agreed to serve over 5 years in prison for securities fraud. Kobayashi was charged with forging customer signatures and misappropriating over $5.4 million in client funds. As previously posted in this blog, Kobayashi settled a Securities and Exchange Commission lawsuit back in March 2011 for defrauding investors who invested in Life Settlement Partners LLC. Click here for related blog posting.

Thumbnail image for Thumbnail image for sec crest.bin.jpgToday, the Securities and Exchange Commission (SEC) filed securities fraud charges against Steven K. Kobayashi, a financial advisor working in the Walnut Creek, California, office of UBS Financial Services LLC. The SEC’s complaint alleges that Kobayashi raised several million dollars through a fund called “Life Settlement Partners LLC” that invested in life settlement policies. Kobayashi allegedly bilked customers out of $3.3 million dollars in a scheme where he misappropriated customer funds to support an extravagant lifestyle that included expensive automobiles, large gambling debts and prostitutes. Kobayashi agreed to settle the SEC’s charges against him without admitting or denying the allegations.

Here is a bit of good news for investors with securities arbitration claims against 14 of the largest brokerage firms, including Merrill Lynch, Morgan Stanley Smith Barney and Wells Fargo. The Financial Industry Regulatory Authority (FINRA) has agreed to extend its year-old pilot program established to give investors the option to request an arbitration panel composed entirely of arbitrators that are not affiliated with the securities industry. Currently, a 3-person arbitration panel must include one industry arbitrator and two public arbitrators. The pilot program was created in response to criticism over whether an industry arbitrator, such as a stockbroker or branch manager, can act impartially when a customer is complaining about securities fraud or account mismanagement by their broker. I’ve participated in arbitrations with both good and bad industry arbitrators. The trouble is, allowing an industry arbitrator to sit on a panel gives the appearance of bias and takes away from the legitimacy of the proceedings. That should be reason enough to dump the industry arbitrator. My California securities law firm is in favor of the pilot program and we have been actively encouraging clients to participate whenever possible.

The brokerage firms who have agreed to participate in the pilot program are:

Ameriprise Financial Services Charles Schwab Chase Investment Services Citigroup Global Markets Edward Jones Fidelity Brokerage Services LPL Financial Merrill Lynch Morgan Stanley Smith Barney Oppenheimer Raymond James TD Ameritrade UBS Financial Services Wells Fargo Advisors / Wachovia Securities

Before discussing the Financial Industry Regulatory Authority’s (FINRA’s) latest action against Merrill Lynch and UBS, I want to share a related story about a client at my San Mateo, California, securities law practice who had invested a substantial part of her portfolio in a Closed-End Fund (CEF) that, unknown to her, was purchased as part of an Initial Public Offering (IPO). The client, who had recently been widowed, had made a large deposit in her brokerage account following the sale of her deceased husband’s business. Needless to say, the widow wanted to proceed cautiously and preserve her capital. Unfortunately for the widow, the broker did not share with her the “dirty little secret” about investing in CEFs:

Customers who invest in Closed-End Funds at the IPO almost always suffer an immediate loss.

This came as a shock to the widow, but it is a well known fact within the industry and is supported by a large body of research going back over 20 years. The reason is simple. CEFs almost always trade at a discount to their Net Asset Value (NAV) in the secondary market. However, when an IPO is structured, the fund’s offering price is typically set at or above the NAV. Thus, the fund’s price usually plunges after the IPO when the shares begin trading in the secondary market. See e.g., Lipper Research Report, “Buying a Closed-End Fund Initial Public Offering: Caveat Emptor!” (November 8, 2004)