UBS Fined $17.5M For Investment Strategy Switch
Two UBS advisory firms have been fined $17.5 million for failing to advise investors that the firms had drastically changed their investment strategy regarding an investment fund they advised.
According to the Securities and Exchange Commission (SEC), UBS AG subsidiary UBS Fund Advisor LLC and UBS Willow Management LLC failed to advise investors in 2008 when their strategy shifted from focusing on distressed debt to a more volatile strategy that included the purchase of large volumes of credit default swaps (CDS), which caused the fund to suffer millions of dollars in losses.
Both entities, along with Bond Street Capital LLC, told investors in the fund offering memorandum that the fund was invested in debt securities issued by distressed companies; however, Bond Street began to fear deteriorating market conditions in 2008 and changed the fund’s strategy. As a result of this change, the CDS portion of the fund grew from $315 million in 2008 to $2.4 billion one year later. These large purchases dramatically altered the profile of the fund and its inherent risks, which investors should have been made aware of, the SEC said.
The entities will jointly pay the $17.5 million fine, which includes $13 million in disgorgement plus $1.3 million in interest and a $3 million penalty payment to the SEC.
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