December 19, 2006
By Shanny Basar
UBS could face further regulatory actions after the bank was accused of defrauding thousands of customers by New York State Attorney General Eliot Spitzer last week.
Klavman & Toskes, the securities arbitration law firm, said it plans on assisting investors to proceed with securities arbitration claims before the NASD and the New York Stock Exchanae arbitration forums. UBS is accused of giving inappropriate advice to clients over fee based accounts.
The law firm said the nature of the recent suit is very similar to the cases filed last year against Moraan Stanlev and Raymond James for failing to review their fee based accounts and ensure that light trading clients were not overpaying. As a result of the NASD’s investigations, Morgan Stanley and Raymond James paid a total of $2.2m (€1.7m) in fines and returned $4.7m to clients.
Spitzer filed a lawsuit against UBS alleging the bank moved inappropriate clients from regular brokerage accounts onto a programme, Insightone, with far higher costs and which was falsely promoted as providing personalised advice and other financial planning services.
The Insightone account charged its customers an asset-based fee instead of per-transaction commissions, which Spitzer’s office said was inappropriate for investors who rarely trade securities or hold significant amounts of cash.
The suit argues that as a result of UBS’s fraudulent conduct, Insightone customers paid tens of millions of dollars more in fees for an Insightone account than they would have paid in traditional brokerage account commissions. For example, UBS charged a 91-year-old Insightone client more than $35,000 for just four trades over two years – $33,000 more than she would have paid in a traditional brokerage account.
Last week UBS denied that the programme was part of a scheme to disadvantage clients, and said it intends to defend itself vigorously in this matter. The bank said: “We are disappointed that the New York State Attorney General did not review or consider relevant data that supports the firm’s position prior to filing the complaint.”
The bank said the Insightone programme was designed to satisfy those clients who sought alternatives to the industry’s traditional commission-based accounts and that since the programme’s inception in 1999, UBS clients have saved hundreds of millions of dollars, in aggregate, over what they would have paid in full commissions. UBS disclosed the possibility of this civil litigation in its third-quarter financial report.
The bank was not available for comment.