Many investors of UBS’s Yield Enhancement Strategy (“YES”), if not all, would never have invested in YES if UBS made full and fair disclosures related to its risks. YES was marketed as an overlay strategy for additional incremental investment income. Put simply, UBS advertised YES as an “iron condor” strategy that used customers’ investment accounts as collateral for options trading. Customers that enrolled in the strategy were required to sign disclosure documents, including margin agreements and options forms. Despite these disclosure documents, UBS never adequately disclosed the true risks of YES – that it was a high risk, low reward strategy. Because of UBS’s failure to adequately disclose the nature of YES, investors were shocked to learn about their astronomical losses at the end of 2018, and again in early 2020.
Generally, when investors trade on margin or trade options, they are required to sign risk disclosure documents. Enrolling in YES was no exception – as it is an options strategy that trades on margin. However, when YES investors were opening YES accounts, some UBS financial advisors downplayed the significance of the risk disclosure forms. For example, in several cases handled by Rich, Intelisano & Katz (“RIK”), the financial advisors dismissed the written disclosures describing them as boilerplate and/or stating that the YES portfolio manager limited risk by employing a low risk “iron condor” strategy. Representations such as these undermine the legal effect of the risk disclosure documents. Moreover, because the YES accounts are professionally managed, UBS and its financial advisors have a duty of full and fair disclosure regarding the investment the Firm recommends to its investors and to not mislead its customers. See S.E.C. v. Cap. Gains Research Bureau, Inc., 375 U.S. 180, 194 (1963) (“Courts have imposed on a fiduciary an affirmative duty of ‘utmost good faith, and full and fair disclosure of all material facts,’ as well as an affirmative obligation ‘to employ reasonable care to avoid misleading his clients.’”) Such conduct falls well below that standard.
RIK’s lawyers have pursued several multi-million dollar arbitrations on behalf of investors to recover for losses sustained due to UBS’s YES program (read more here). It is no surprise that UBS has attempted to shield itself from liability by hiding behind the risk disclosure forms. Not only were the communications related to the risk disclosure documents improper, but the disclosure documents themselves were entirely deficient because they contained a number of ambiguous, contradictory, and misleading statements concerning risk that further undermine the disclosures’ purported legal effect. For instance, in addition to generically disclosing risks, the disclosure documents also state specifically how risks associated with YES were mitigated or limited. These mitigation statements give investors a false impression that the strategy is protected from the high risks described in the “boilerplate” disclosure documents.
