UBS Dinged in YES Options Case, Complaints Remain on Brokers’ Records
An arbitration panel in Boca Raton, FL, has awarded almost $90,000 to a UBS Wealth Management client who alleged that he suffered “out-of-pocket losses” of $402,182 in a failed options overlay strategy known as YES.
Scores of wealthy UBS customers who invested in the Yield Enhancement Strategy have brought arbitration complaints asserting that their brokers fraudulently presented it as a conservative strategy that would add to their returns regardless of market direction.
The strategy, managed by a team of New York City advisors who shared production credits with other UBS brokers who referred clients to them, went awry in volatile markets, the investors have claimed.
Tuesday’s award to Gerald S. Backman, a retired partner at the corporate law firm Weil Gotshal & Manges, was the first of four YES arbitration cases decided to date in which an investor won a monetary award. UBS prevailed in the other hearings.
The Boca Raton panel of three public arbitrators did not explain their decision, other than to say that the $89,675 award to Backman was for unsuitability. He had also filed counts of fraud, negligence, omissions, breach of fiduciary duty, breach of contract and failure to supervise, according to the award document posted on the Financial Industry Regulatory Authority’s dispute resolution website.
The arbitrators assessed fees of $13,500 for 12 hearing sessions to UBS, diverting from the more prevalent practice of splitting hearing fees among both parties.
“We are pleased that the Finra panel assigned responsibility to UBS for its representative’s recommendation of an extremely high-risk investment strategy to a conservative investor,” said Christopher Gray, a New York City lawyer who represented Backman.
He declined to comment on the arbitrators’ denial of punitive damages.
A UBS spokesman did not reply to a request for comment as to whether the firm will ask a court to vacate the award.
The arbitrators denied UBS’s request to expunge the claim of misrepresentation and unsuitability from the regulatory records of Mark Zeller, Backman’s Park Avenue branch broker, and of Scott M. Rosenberg, a member of the team of former Credit Suisse advisors that managed the YES strategy.
Zeller, whose team website says he ranked as a “Financial Times” Top 400 financial adviser for the last three years, did not return a call for comment and was not named as a respondent in Backman’s claim, which was filed in February 2019. His BrokerCheck history lists a second complaint filed in April 2020 that also alleges unsuitability and misrepresentation regarding the options overlay strategy.
The team’s other managing director, Russell Rabito, also has two customer disputes alleging similar claims, according to his BrokerCheck record. The team’s six advisors were managing more than $4.7 billion as of the end of 2019, according to their website.
Another arbitration panel in New York last week denied a YES fraud claim against UBS of more than $2.5 million filed by John R. Miller, a senior investment banker at Barclays PLC.
Miller signed documents attesting to his having received disclosures about YES and was told by his broker that he could exit the strategy, the award document said. Arbitrators in the case granted UBS’s request to seek expungement of Miller’s complaint from his broker’s records.
UBS also submitted evidence that investors received risk disclosures in the two other cases in which arbitrators denied claims that the YES strategy was misrepresented.