UBS, UHNW Advisors Go Two-for-Three in YES Option Arbitrations
UBS Wealth Management this month prevailed in convincing two arbitration panels that clients who invested in a widely marketed broker-managed options strategy that went awry in volatile markets were not entitled to damages. But the wirehouse was ordered to pay $1 million to two clients who claimed professional negligence involving the Yield Enhancement Strategy (YES) that has brought claims from scores of its well-heeled clients.
“Claimant’s assertions that the YES options were somehow faulty, in spite of the language in the pitch materials, challenged credulity and we therefore found against him,” they wrote in their explained decision.
The arbitrators also vindicated Johnston’s New York-based broker, Thomas P. Wallack, a 34-year industry veteran who joined UBS in 2013 from Merrill Lynch.
“The Panel did not find there to be a scintilla of evidence that Unnamed Party Wallack did anything wrong,” they wrote in supporting UBS’s request that the claim be expunged from the brokers’ regulatory record that is publicly available on his BrokerCheck history.
Jeffrey B. Kaplan, a lawyer at Miami-based Dimond Kaplan & Rothstein who represented Johnston and has several other YES cases in process, said he was disappointed with the decision but will not attempt to vacate it in court. “We think it was wrongly decided, and the conclusions are incorrect, but we have respect for the arbitration process,” he said.
In a separate YES claim in Denver, CO, another all-public arbitration panel granted $1.04 million, plus interest, to UBS clients Alan Friesen and Jacob Jackson. The three arbitrators denied UBS’s request to expunge the complaint from their broker’s records, according to a March 8 decision, which did not include an explanation of their reasoning.
The clients’ lawyer said he pointed out discrepancies between risk disclosures in written documents and testimony from a manager and the broker that they believed the YES strategy was low- to moderate-risk with relatively high rewards. He also said that they did not blame their Lincoln, NE-based broker, Jason Dworak, for selling them the strategy that was managed by a New York team and widely marketed to clients of UBS’s ultra-high-net-worth Private Wealth Management unit.
“Our argument was that UBS was contradicting itself,” said Alan Friedberg, a lawyer with Berg Hill Greenleaf Ruscitti in Boulder. “My clients believe and testified that Mr. Dworak has a lot of integrity, and they are still doing business with him. They feel he was victimized.”
Dworak joined UBS in Lincoln in December 2008 from Morgan Stanley, where he had worked for nine years, according to his BrokerCheck record.
The investors’ $1.04 million award—about $727,500 to Freisen, a Nebraska consultant on retail client marketing to small banks, and about $317,000 to Jackson, a retiree—was shy of the approximately $1.5 million they claimed, their lawyer said.
In the third YES case, decided in New York on March 12, another all-public panel split on a claim from investor Sherrie Pellini for $750,000 in compensatory damages plus advisory and other fees and punitive damages. Two of the three arbitrators denied her claims—a win for UBS—and also denied the firm’s request to expunge the claim from the record of her broker, Robert B. Perlman, a 32-year registered rep who joined UBS from Credit Suisse Securities in 2015. The third arbitrator did not explain his reasons for dissenting from the decision.
In each of the three cases decided this month, arbitrators denied clients’ requests to require UBS to pay their attorneys’ fees.
A UBS spokesman declined to comment on the decisions.
Plaintiffs’ attorneys have been actively soliciting investors who lost money in the YES strategy that went awry amid highly volatile equity markets in late 2018 and 2019. The so-called Iron Condor strategy was developed by Matthew Buchsbaum, a broker who moved with his team to UBS in 2015 from Credit Suisse, where they developed the program.
Many of the investors who have filed arbitration complaints worked with former Credit Suisse brokers who flocked to UBS when their former firm shuttered its U.S. operation five years ago. But the fact that neither Dworak nor Wallack were Credit Suisse alumni testifies to the fact that UBS encouraged Buchsbaum’s team to market YES heavily to brokers servicing clients with net worths of $5 million and higher, plaintiffs’ lawyers have said.
The Buchsbaum team split fees 50-50 through joint-rep accounts with advisors in the field, according to several of the lawyers.
UBS to date has prevailed against most of the arbitration claims, which generally cite negligence and breach of fiduciary duty by UBS. Awards have been denied to a Wall Street investment banking executive, among other clients whom UBS said were sophisticated and well-informed on options.
In December, a Florida arbitration panel ordered UBS to pay $90,000 to a client who alleged losses of more than $400,000 on the strategy.