The Securities Arbitration Law Firm of Klayman & Toskes is investigating securities arbitration claims in the arbitration forum established by the Financial Industry Regulatory Authority (“FINRA”) to recover losses sustained in the UBS Willow Fund. Among other allegations, the claims involve causes of action for unsuitability, misrepresentation and omission, breach of fiduciary duty, negligence, and failure to supervise. In February 2000, UBS and Bond Street Capital formed the UBS Willow Fund, a closed-end mutual fund, in order to purchase debt and other securities of distressed companies that were in the process of restructuring their debt financing. The Fund’s regulatory filings stated that it would “maximize total return with low volatility by making investments in distressed investments,” the filings said, “primarily in debt securities and other obligations and to a lesser extent equity securities of U.S. companies that are experiencing significant financial or business difficulties.” The Fund might also hedge its portfolio against risks, using credit default swaps (“CDS”), the filings added, or use those instruments “for non-hedging purposes.” Moreover, before investing in the Fund, many UBS Willow Fund investors were advised that the Fund was a low risk, fixed-income product.
It is believed that in or about 2008, the UBS Willow Fund deviated from its disclosed investment strategy as set forth in the offering materials, abandoned its focus on investing “primarily in debt securities” of companies that were experiencing financial or business difficulties, and instead began to purchase and trade CDS that were largely based on foreign sovereign debt in addition to private issuers. CDS carry special risks that were never disclosed to investors of the UBS Willow Fund. Unfortunately, the managers of the Fund failed to disclose to investors that CDS would be used as a primary investment strategy for the Fund.
Regulatory filings reveal that the Willow Fund had performed well through 2006. That year, the Fund returned almost 25% on a portfolio of corporate bonds, bank loans and corporate repurchase agreements. CDS amounted to an insignificant 0.18% of the Willow Fund in 2006. The portfolio that year appears to have been consistent with the Fund’s description in regulatory filings.
However, according to recent news reports, the money manager of the Willow Fund, Sam S. Kim, “plunged headlong into credit default swaps on government debt of Germany, Sweden, France, Spain and other nations. In these trades, Mr. Kim was buying a type of insurance against the nations’ defaulting; his investors, therefore, would benefit if problems in these nations worsened.”
By the end of 2008, corporate bonds amounted to only 6% of the portfolio, down from 29% a year earlier. The value of the CDS, meanwhile, had ballooned to 25% of the portfolio from 2.6% in 2007. By 2009, CDS amounted to 43% of Willow’s portfolio, a fact which was unknown to many Willow Fund investors. While the Fund reported gains in 2010 and 2011, the Fund experienced a whopping 89% decline in 2012. What was represented to be a low risk product was turned out to be a high risk, speculative investment that was unsuitable for many investors.
In October 2012, the UBS Willow Fund informed investors that it was liquidating its assets after suffering significant losses in 2012. About 70% of its losses, UBS later said, derived from exposure to CDS. UBS has stated that it expects to return whatever money was left to investors by June of 2012. That return will most likely amount to pennies on the dollar.
In December 2012, a class action lawsuit, case no. 12-civ-9288, was filed on behalf of all investors in the UBS Willow Fund. However, the case was subsequently dismissed without prejudice in January 2012. Accordingly, investors who sustained substantial losses in the UBS Willow Fund are encouraged to contact Klayman & Toskes to explore their legal rights and options, and should consider filing an individual securities arbitration claim against UBS. Klayman & Toskes has successfully obtained recoveries for clients over the last several years in investment products like the UBS Willow Fund.
If you sustained losses in the UBS Willow Fund, contact our law firm, toll free, at 888-997-9956, to explore your legal rights and options.