A group of investors claimed that the bank’s investment recommendations, made through one of its brokers, were in breach of its fiduciary duty to clients and a violation of FINRA’s suitability rules. Additionally a failure to supervise and fraud were also alleged.

According to the claimant investors the bank recommended “an aggressive, high-risk trading strategy designed to produce speculative, short-term profits” rather than the long-term wealth preservation they presumably sought.

In the claim, the investors indicated that they were “not professional investors”, but that, despite this, the bank had solicited an “aggressive trading strategy” by way of boilerplate paperwork.

High risk

The recommendations to hold “highly risky positions” were “at odds with the asset protection and multi-generational wealth transfer advertised as its market offering”. And the bank also “recommended that they continue to hold the positions in the face of mounting losses.”

UBS asked for the claims to dismissed in their entirety with prejudice and to expunge the claim from records.

The pleadings involved the submission of documents and also the presentation of oral argument and evidence. The large number of hearing sessions – 71 – is almost certainly evidence of a potentially complex case as well as hard-fought arguments.

Frustrating our ability to analyze the decision is the fact that none of this detail has been disclosed, as a result of the arbitration being held behind closed-doors and remaining confidential.

The FINRA arbitration panel held for the claimants.

Punitive damages

It ordered UBS to pay them over $23m in compensatory damages. In addition the panel decided to award punitive damages to the tune of a very significant $69.1m.

The broker in question was also held liable and was ordered to pay over $2.5m in compensatory and $500,000 in punitive damages.

Unsurprisingly it has been widely reported that the bank disagreed with the arbitration panel decision.

A UBS spokesperson has been quoted as saying that the claimants were “experienced investors” who had pursued “an aggressive shorting strategy profitably for years and complained only after they took losses.” According to the spokesperson, UBS will seek a judicial review of the award.

Our impression is that the bank will likely be particularly keen to challenge the large punitive damages awarded. It has already called these “inconsistent with the facts and the law.”

Important to note is that the decision is one that was made by a panel of independent arbitrators chosen by the parties. FINRA facilitates the arbitration forum itself, but has no part in the decision making.