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UBS Yield Optimization Notes Securities Fraud Investigation

UBS Yield Optimization Notes

Investigating Potential Claims Involving UBS Yield Optimization Notes

Did you lose money investing in UBS Yield Optimization Notes at the recommendation of your broker? If so, the attorneys at The White Law Group may be able to help you recover your losses through FINRA Arbitration.

The White Law Group is investigating the liability that brokerage firms may have for recommending UBS Yield Optimization Notes to their customers.

Last September, The Securities and Exchange Commission charged UBS Financial Services with failure to adequately educate and train its sales force about reverse convertible notes (RCNs), and fined them $15 million.

The SEC’s order finds that UBS failed to develop and implement policies and procedures reasonably designed to educate and train UBS registered representatives in connection with the sale of RCNs, such as UBS Yield Optimization Notes.

RCNs are complex securities that feature embedded derivatives whose performance is driven by the concept of implied volatility.  Without adequate education and training, certain registered representatives made unsuitable recommendations in the sale of RCNs to certain retail customers in light of their investment profiles.  UBS sold approximately $548 million in RCNs to more than 8,700 relatively inexperienced retail customers.

Specifically, The White Law Group is investigating the following UBS Yield Optimization Notes:

  • UBS Trigger PAOS Cree
  • USB Trigger PAOS US Steel
  • UBS PAOS Trigger Peabody Energy

The Risks of Reverse Convertible Notes (RCNs)

The risks of RCNs can be difficult for individual investors and investment professionals alike to evaluate. In fact, in most cases the investor in an RCN bears all of the downside risk while the issuer of the note receives all of the potential upside.

RCNs such as UBS Yield Optimization Notes, are notes whose repayment of principal is linked to the lowest value of the reference security during the RCN’s term. If the reference security’s value drops below a “trigger” price during the RCN’s term, then the RCN will pay the lesser of its face value or the market value of the shares. If the reference security’s value does not drop below the “trigger” price, then the RCN will pay its face value at maturity.

Essentially, in addition to taking on the credit risk of the issuer, the investor also takes on the price risk of the referenced security or securities. Meanwhile, the issuer has passed its risk on to the unsuspecting investor. Notably, the issuers of RCNs are generally large financial institutions, such as UBS, while the investor is typically an unsophisticated individual who is attracted by the high coupon rate and doesn’t understand the level of risk that comes with these highly complex structured investments.

Furthermore, the issuer charges an up-front fee to assemble and package the RCN’s components. The fee typically ranges from one percent to eight percent or more, and is usually described in the prospectus as “built-in costs” or “costs of hedging.”

The investor is also exposed to potential liquidity risk. The issuer is not required to maintain a secondary market, and, like most structured products, there may be no buyer if the investor needed to liquidate the RCN prior to maturity.

Altogether, RCNs such as UBS Yield Optimization Notes, are extremely complex, high-risk, and frequently illiquid investments that are difficult to understand and are not suitable for unsophisticated investors.

Brokerage firms that sell RCNs are required to evaluate whether they are suitable given the investor’s age, risk tolerance and investment objectives, net worth, and investment experience. Firms that make unsuitable recommendations can be held responsible for losses in a FINRA arbitration claim.

Free Consultation

If you suffered losses investing in UBS Yield Optimization Notes and would like a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

For more information on The White Law Group, visit http://www.WhiteSecuritiesLaw.com.


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