The US Financial and Regulatory Agency (Finra) has filed an arbitration claim against UBS Financial Services for breach of its fiduciary duty, violation of industry rules and negligent supervision in relation to the sale of a structured note.
According to the filing, a Saint Augustine, Florida, resident hired securities arbitration law firm Soreide Law Group to recover losses that allegedly incurred from UBS broker Todd Ellentuck charging both a commission on bond sales and a management fee.
The claimants also allege improper and unauthorized trades in Puerto Rico bonds and the over concentration into master limited partnerships (MLPs) and other oil and gas related investments.
In addition the losses sustained in MLP's and Puerto Rican bonds there are also allegations of selling unsuitable structured products which include the Deutsche Bank 5-Year Collared Leveraged Securities (cusip 25152RUX9).
The UBS-issued structured note, a growth product linked to the 30-Year CMS Rate, has a capped call structure and will pay 100%, plus 50 times the difference between the final swap rate and the initial swap rate, subject to a maximum payout of 150%, if the final level of the CMS rate is greater than or equal to 4% at maturity. If the final CMS rate is less than 4% the product will pay 50 times the difference between the initial swap rate and the final swap rate, subject to a minimum return of 50%. The product which sold over US$4.5m will mature on February 2018.
According to the Finra broker check report, Ellentuck was employed by UBS Financial Services from 2012 to October 2016, and discharged by the Swiss bank for "violating the firms order entry policy by failing to enter trades immediately upon receipt, accepting certain orders from non-customers absent prior trading authorizations, and in certain cases, receiving both fees and commissions/sales credits in connection with transactions in the same securities".
The claimants are seeking an unspecified amount of damages up to US$750,000, according to the filing. Lars Soreide, Esq., expects the case to be arbitrated by the summer of 2018. The investigation is still ongoing and UBS and Ellentuck have yet to respond to these allegations.
The suit is being arbitrated through Finra case number 17-01863 and UBS has yet to file a response.
The Finra filing was followed by a a $499,000 fine imposed by the Pennsylvania Department of Banking and Securities (Dobs) to Newbridge Securities Corp. for failing to supervise a broker in connection with sales of structured products to his clients in the state.
'From in or about January 2012 until December 2016, Newbridge did not maintain a reasonable system for applying and enforcing written procedures pertaining to their sales of structured products by one agent in Pennsylvania to certain of his clients who were residents of Pennsylvania,' according to the order, which was released on July 18.
The order does not disclose the name the broker or provide any details about the sales volume, the amount of securities sold or the number of clients affected. The regulator's order does not provide any detail seither about the type of investment product, the issuer and when it was sold.
According to the order, Newbridge Securities agreed to the consent order without admitting or denying its allegations.
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