UBS Ordered to Pay Houston Investor $358K in ‘YES’ Case
A three-person arbitration panel has ordered UBS Wealth Management USA to pay a wealthy Houston investor almost $358,000 in damages tied to a widely marketed options-spread strategy dubbed YES (Yield Enhancement Strategy) that went awry during market volatility, according to an award finalized Wednesday.
The claimant, Daniel Ferber, had argued that his advisors and UBS in its marketing materials fraudulently misrepresented the downside risk and amount of leverage associated with the strategy. The strategy was pitched as a low-risk way to generate an additional 3% to 4% per year for customers but UBS did not disclose the investors could lose as much as 35%, Zamansky said.
“We call this picking up pennies in front of the steamroller,” Zamansky said. “What rational investor would ever take that bet?”
Zamansky said he believed the case could be a “gamechanger” as they had simplified their argument to focus on the lack of risk disclosures in offering materials rather than a more complicated claim about the “directional” nature of the strategy that had only mixed success in other cases.
A UBS spokesman declined to comment on the award. UBS has prevailed in eight of the 13 arbitration awards issued in YES cases. In the other five, the investors received less than the total damages they had sought.
In Ferber’s case, the arbitrators denied an expungement request from two Houston brokers, Mark Elias and Scott Rosenberg, who were not named as respondents in the case, but also denied the claimant’s request for attorneys’ fees and interest.
UBS last month was ordered to pay a claimant Allison R. Walk $300,000 in another YES options case. Walk, who himself is registered as a broker with Pickwick Capital Partners in White Plains, New York, had requested a range of damages from $482,000 to $1.14 million in damages, according to the August 23 award. It also denied a request from the UBS broker, who was not named as a party, to expunge his record.
But another three-person panel three days earlier denied another claim for roughly $4 million in compensatory and punitive damages and ordered the complaints wiped from the brokers’ records.
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 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% amid the extreme market volatility sparked by the Covid-19 pandemic, according to UBS reports to investors.