Compliance July 16, 2007

UBS Settles Fee-based Brokerage Account Suit with NY Attorney General

UBS has reached a $23.3 million settlement agreement with New York Attorney General Andrew Cuomo to quell allegations that the investment bank engaged in ‘steering customers into the fee-based accounts of its InsightOne brokerage accounts.’
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The settlement agreement was announced in a press releasefrom the Attorney General’s office and calls for UBS to reimburse customers $21.3 million and pay $2 million in penalties.

“UBS convinced customers to rely on its advice and then abused that trust,’ said Attorney General Andrew Cuomo, in the announcement. “This major settlement is a win for customers inappropriately pushed into unsuitable brokerage accounts and a warning to the entire industry that customers’ interests must come first.’ UBS denies the allegations in the press release that it that it betrayed its clients’ trust, but settled to skirt litigation.

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The settlement was reached after an investigation led to a lawsuit that asserted UBS placed thousands of traditional brokerage customers to InsightOne accounts, falsely promising comprehensive and sophisticated financial planning services.

Specifically, the charges against UBS that were filed in New York County Supreme Court in December 2006 were as follows:

  • UBS was fully aware that InsightOne would be inappropriate and more costly for traditional brokerage customers who made few trades per year.
  • UBS financially gave brokers incentives to switch customers into accounts regardless of whether the accounts fit their needs, and then charged customers millions of dollars in unnecessary fees.
  • UBS failed to responsibly prescreen customers before recommending unsuitable InsightOne accounts.

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