UBS to Pay $3.5M Penalty To Settle Allegations that It Disadvantaged Retirement and Charity Accounts During Mutual Fund Transactions

UBS Financial Services Inc. (UBS) has agreed to settle US Securities and Exchange Commission charges accusing the brokerage firm of not ensuring that certain charitable brokerage accounts and retail retirement accounts received the sales charge waivers or reduced fee share classes to which they were entitled when they purchased certain mutual funds. However, despite settling, including agreeing to pay a $3.5M penalty, the firm did not admit to or deny the SEC’s findings.

The regulator’s order states that from at least 1/2010 through 6/2015, UBS did not confirm certain customers’ eligibility to purchase from a less costly mutual fund share class and instead recommended that they buy more expensive ones. The customers that were affected purportedly did not have enough information at their disposal to understand that UBS had a conflict of interest when recommending the costlier share classes, such as Class A shares that came with an upfront sales fee and Class B/C shares that charged contingent deferred sales fees at the back-end plus came with costlier ongoing expenses and fees. All of the customers affected had been eligible to buy either no-load Class R shares or load-waved Class A shares.

As a result, claims the Commission, 15,250 customer accounts paid more than $18.5M in excess fees and expenses, upfront sales fees, and “contingent deferred sales charges.” Also, by selling investors the more expensive share classes, UBS earned higher compensations. The brokerage firm is accused of not disclosing to these customers that buying the costlier share classes would hurt their investments’ returns.

The broker-dealer has since made payments plus interest to the customers that were affected and transferred eligible ones to the less costlier mutual fund share class at no additional expense to them. UBS said it would continue to get in touch with about 970 customers who have either moved or who still have not deposited or cashed the payments it sent them.

UBS Financial Services is a subsidiary of UBS AG.

Mutual Fund Sales
Mutual funds come in different share classes and charge different sales fees and other costs. These charges and fees can affect how much a brokerage firm makes on the sale and a broker dealer usually is paid a portion or all of the sales charges plus Rule 12b-1 fees.

At the SSEK Partners Group, our mutual fund shares fraud lawyers represent charitable organizations, retirement funds, and other institutional investors in fighting to recoup their investment losses. Contact us today.

The SEC Order Instituting Cease and Desist Proceedings (PDF)


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