Monthly Archives: September 2016

This past May, 2016, Breitburn Energy Partners LP filed for chapter 11 bankruptcy protection, another casualty of plunging oil prices. Many investors were sold this investment by their brokerage firms and financial advisors who failed to properly disclose all the risks associated with an investment in this risky energy company. Our firm is investigating cases against brokerage firms where investors were improperly sold this investment. Please contact us if you were an investor in Breitburn Energy Partners LP and have any questions about how this investment was sold to you.

On September 28, 2016, the U.S. Securities & Exchange Commission announced that it had imposed severe monetary penalties on UBS Financial Services in connection with the firm’s activities involving nearly $10.7 billion of stock-linked reverse convertible notes (“RCNs”) that had been sold to approximately 44,000 customer accounts between 2011 and 2014. (“In the Matter of UBS Financial Services Inc., Exchange Act Release No. 34-78958”)

The penalties, which included more than $9 million in disgorgement and a civil penalty of $6 million, were based on UBS having failed to develop and implement policies and procedures reasonably designed to educate and train its registered representatives in connection with RCNs so that they could adequately understand the risks and rewards of the product and could form a reasonable basis to make suitable recommendations to their customers.

Without adequate education and training, certain registered representatives made unsuitable recommendations in relation to the offer and sale of approximately 2,500 different RCNs to certain customers – many of whom had little or no relevant investing experience and had identified to UBS modest reported income and net worth, primarily moderate or conservative investment objectives, and some of whom were retired.

RCNs are a type of structured product issued by a financial institution as an unsecured debt obligation that is linked to the performance of an underlying single stock. RCNs are structured to pay a higher interest rate than conventional debt of the same issuer because of the inclusion of the embedded derivative that provides essentially a synthetic put on the underlying stock.

The UBS single stock-linked RCNs at issue in the SEC enforcement action involved certain complex structures, including: (1) Trigger Yield Optimization Notes; (2) Trigger Autocall Optimization Securities; (3) Trigger Phoenix Autocall Optimization Securities; (4) Airbag
Yield Optimization Notes; and (5) Airbag Autocallable Yield Optimization Notes.

As noted in the SEC’s Enforcement Order, “UBS’s internal education and training primarily focused on describing the payouts for the various products and . . . it did not provide adequate training on certain important aspects of RCNs. For example, although the Structured Solutions Desk provided potential issuers with information regarding the RCN option features from the ‘investor’s perspective,’ internal educational materials lacked similar information. In addition, UBS’s internal educational materials did not describe sufficiently the role of implied volatility and the potential for breach in the selection of the equity securities underlying the RCNs. As a result, UBS registered representatives were not adequately educated and trained to understand adequately the risk and characteristics of the product, including relevant volatility concepts and the role that volatility played in the selection of the equity securities underlying the RCNs.”

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with UBS Financial Services Inc., please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Aware of this issue for many years, FINRA has made little progress in finding a way to ensure investors get what they are owed. Back in 2000, a report was issued by the U.S. Government Accountability Office that stated, the industry needed to address the problem of unpaid arbitration awards. With the decline of the broker dealer industry and many firms shutting down the last few years, this issue on unpaid awards to investors is more demanding.

Some experts believe the solution is requiring firms to carry insurance to cover the payment of arbitration awards, but broker dealers who have carried insurance for these investor claims, have proven to be limiting resulting in low payouts or the specific types of claims not being covered.

With new FINRA CEO, Robert Cook, it is being suggested he start off his new role fixing this issue and making his mark for retail investors. The latest industry talk is the idea of establishing a fund for investors of unpaid arbitration awards, but with the long history of no solutions for this growing problem who knows what will happen.

An article this week in The Wall Street Journal (“Federal Prosecutors Investigating Wells Fargo Over Sales Tactics”) stated that federal prosecutors are in the early stages of an investigation into sales practices at Wells Fargo & Co. – the same sales practices that led to Wells Fargo being slammed with a $185 million fine last week in an enforcement action that was filed by the Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and Los Angeles City Attorney.

The investigation, which is reportedly being conducted by the U.S. Attorney’s Offices for the Southern District of New York and the Northern District of California, could potentially lead to civil or criminal charges being filed against Wells Fargo and/or its executives.

At the center of this new federal investigation are the same allegations that led to last week’s enforcement action which asserted that Wells Fargo had engaged in “widespread illegal” activity which included employees having falsified documents in connection with as many as 2 million accounts having been opened without customers’ knowledge, consent or permission.

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with Wells Fargo, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).