By Katherine S. DiDonato, Esq. of Shustak Reynolds & Partners, P.C. posted on Friday, October 16, 2015.
UBS AG has agreed to a $19.5 million settlement with the SEC over claims the bank misled investors about the risk tied to debt securities packaged with derivatives. This is the first case against an issuer of “structured notes”–a $50 billion dollar-a-year industry. Structured notes are a complex financial product that typically consists of debt securities with a derivative tied to the performance of other securities, commodities, currencies, or proprietary indices. Many of these notes are sold to relatively unsophisticated retail investors.
The SEC alleges that UBS misled investors that the investments were “transparent” and that it used “market prices” to calculate the financial instruments underlying the index, when, in reality, undisclosed hedging trades by UBS reduced the index price by about five percent.
As part of its settlement with the SEC, UBS agreed to cease and desist from similar conduct in the future and $5.5 million of the settlement funds will go to V10 investors to cover the total amount of investor losses.
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