UBS Ordered to Pay $800k in One ‘YES’ Case, But Prevails in Another
UBS Wealth Management USA has gone one for two in recent arbitrations over its widely marketed options-spread strategy dubbed YES (Yield Enhancement Strategy), which went haywire during market volatility and sparked dozens of client complaints.
In the case favoring investors, a three-person Financial Industry Regulatory Authority panel ordered the wirehouse to pay more than $800,000 to two couples who had lost money in the strategy, according to a Sept. 17-finalized award. The three ‘public’ arbitrators in Boca Raton, Florida, did not provide the reasons for their decision.
Robert Shinbrot and Nicholas Trentalange were business partners in ForwardThink Group, a company acquired for $46 million by tech consulting firm Perficient in 2014, according to their LinkedIn profiles and news reports on the transaction.
The customers’ Miami-based attorney, Jeffrey Kaplan of Dimond Kaplan & Rothstein, said the case was unique as only the second example in over a dozen cases so far involving the YES strategy in which the claimants received 100% of the requested damages. The arbitrators also ordered all costs and fees, totaling just north of $57,000, be assessed to UBS.
A separate Finra panel this month had awarded Houston investor Daniel Ferber the full $358,000 in damages he had sought, but denied his requests for interest and fees and costs.
Including the two most recent instances, UBS has prevailed in nine of 15 arbitration decisions in YES-related cases. Only in the Shinbrot-Trentalange and Ferber cases have the customers received 100% of their YES loss.
Kaplan, who has represented investors in several decided and still-pending YES arbitration hearings, said he focused significantly on the lack of adequate risk disclosures in UBS marketing materials for the strategy.
“It is difficult, if not impossible, to determine which arguments or evidence resonated with the arbitrators in a non-reasoned award,” Kaplan said. “In our YES cases, we have relied on largely the same evidence and variations of the same arguments in presenting our clients’ cases to multiple different FINRA arbitration panels, but the awards issued in those cases have ranged from $0 to 100 cents on the dollar.”
The Shinbrot-Trentalange party had worked with UBS brokers on the same floor as the New York-based team that had devised the YES strategy, Kaplan said. But he said he opted not to name them because he believed that even they were not told about “certain material risks of YES” that the originators of the strategy failed to properly disclose.
As part of their decision, the panelists denied UBS’ request to expunge the claim from the records of Tim Croak and Gabriel Cooperman, two brokers on the former Credit Suisse team led by Matthew Buchsbaum, which had created the YES strategy. Croak and Cooperman were not named parties in the arbitration.
“We believe the arbitrators did the right thing,” Kaplan said. “They saw the wrong as we did and they did what they could to right that wrong by issuing a full award.”
In the second case, favoring UBS, a New York City-based Finra panel denied customer Jess DiPasquale’s YES-related claim seeking $743,021, more than $50,000 in “out-of-pocket costs,” punitive damages and attorneys’ fees equal to 25% of the award, according to a Sept. 22 award.
Similar to the Shinbrot-Trentalange case, the three ‘public’ arbitrators did not provide an explanation for their reasons. Despite denying DiPasquale’s claims entirely, the panelists also shot down UBS’ request to expunge the matter from the otherwise clean record of Marc Ridell, a New York City-based UBS broker and unnamed party.
DiPasquale’s Beachwood, Ohio-based attorney, Alan Rosca, did not respond to a request for comment on the arbitration or outcome.
A UBS spokeswoman declined to comment on either arbitration or whether it would take the rare step of seeking to overturn the award in court.
The YES strategy 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% amid the extreme market volatility sparked by the Covid-19 pandemic, according to UBS reports to investors.