UBS Financial Services, Inc, (“UBS”) employed a financial advisor (the “FA”) who has offices in Bonita Springs, Florida and Sylvania, Ohio.
UBS held out the FA and other UBS employees on his team as investment advisers, investment managers, financial advisers, and financial planners with special skills and expertise in the management of securities portfolios and financial, estate, retirement, and tax planning matters.
We represent an elderly widow investor who has sued UBS for the FA’s alleged misconduct as a stockbroker, investment adviser, investment portfolio manager, and financial planner.
At the outset, it is important for our readers to know that our client’s allegations have not yet been proven.
We are providing information about our client’s allegations and seeking information from other investors who did business with UBS and the FA to help us win our client’s case.
Our client was a wealthy widow. Her husband managed the family investment portfolio before his death. She had not participated in any of the brokerage accounts until after her husband’s death. She then turned to and relied upon the FA, who was her husband’s primary financial adviser, to advise and manage her financial affairs.
Shortly after her husband’s death, the FA allegedly explained and reassured our client that he and his team of stockbrokers, investment advisers, investment portfolio managers, and certified financial planners would take care of all her investment and finance related needs.
For months after her husband’s death she was naturally despondent and no longer comfortable living in the same home they shared. An opportunity arose to purchase a new residence. She consulted with the FA about the purchase and sought his assistance to secure a conventional mortgage in connection with the purchase.
At the time, the FA was working at Merrill Lynch and advised her not to seek a conventional mortgage from a bank, but to establish securities based lending (“SBL”) accounts at Merrill Lynch and UBS and use the assets in the two trusts’ brokerage accounts as collateral for loans to be issued by Merrill Lynch and UBS’ banking affiliates to fund the purchase and renovation of the new residence.
The SBL at Merrill Lynch was known as a Loan Management Account (“LMA”), and the SBL at UBS was known as a Variable Credit Line.
According to our client, the FA stated the SBL account interest rates were lower than conventional mortgage rates, the financial advisers could continue to manage the Claimants’ assets in the accounts and earn more than the SBL account interest rate being charged, which would more than pay for the loan interest expenses, and she could use the difference in the return on the investment income produced by the investment advisers to pay down the principal and interest amounts of the SBL account loans.
Our client relied upon the FA’s recommendation and, with his assistance, established SBL accounts at Merrill Lynch and UBS to help purchase and renovate her new residence.
At the FA’s recommendation, she borrowed millions from the SBL accounts at UBS and Merrill Lynch with her securities accounts serving as collateral.
The FA and his team subsequently transferred employment to the UBS offices located in Sylvania, Ohio and Bonita Springs, Florida branch office. At the FA’s request, our client transferred all of her accounts from Merrill Lynch to UBS, including the LMAs.
At UBS, the FA allegedly made the same representations about the nature and mechanics of the UBS Variable Credit Lines as he previously made to induce her to open the LMA accounts.
According to the FA, these were the same type of UBS Variable Credit Line accounts he persuaded her to previously open with UBS. Our client agreed, and the Merrill Lynch LMA loan balances were transferred to UBS and became UBS Variable Credit Lines.
Thereafter, the broker dealer, investment advisory, and SBL relationship at UBS with respect to Claimants’ accounts were managed by the FA. The amount of debt drawn down on the credit-line grew and grew over the years. In 2018, our client allegedly told the FA she planned on selling her residence to pay down the credit-line.
Notwithstanding, in July 2019, the FA allegedly persuaded our client to convert the variable credit lines to a fixed interest rate credit line, which had become available to UBS’ high net worth customers.
The FA supposedly explained the benefits of switching, including the amount of savings in annual interest expenses. But according to our client, the FA never explained the detriment of switching to the fixed interest rate credit line or his conflict; particularly the fact that when she sold her residence or paid down the loan balance with the sales proceeds, she would be penalized for doing so.
Our client has alleged that he recommendation to utilize the fixed interest rate credit line as part of the investment strategy was not only misleading by omission but also a personal conflict of the FA with her best interest and an unsuitable investment strategy recommendation in light of her well known desire to sell the residence to reduce the huge debt and interest expenses.
The unsuccessful effort to sell the residence continued into December 2019, and both the FA and our client were frustrated. The FA had allegedly been urging her to reduce the real estate listing price to under $3 million, which meant our client would realize a loss if and when the property sold; a loss our client told the FA she was absolutely unwilling to accept if it could even be sold at that price. There were simply no buyers for an expensive residence like hers in the Naples market at that time.
Our client was uncomfortable with the amount of debt she had accumulated at UBS allegedly at the FA’s recommendation and the huge amount of interest she was accumulating on those loan balances. She reminded the FA of his promise to reduce the debt with the profits in the accounts.
The FA claimed he had been reducing the debt, but our client did not believe he had done enough. She recognized that the prospect of a sale of the residence was not imminent and listened closely to the FA when he told her the stock market and her portfolio were at their highest points ever.
In December 2019, our client told the FA she wanted him to take the profits and directed him to sell enough of the investments he managed to pay down the debt by at least $3 million.
According to our client, the FA objected to any sale of securities at that point in time, claiming that she would incur a huge amount of capital gains tax and that it would be better to wait to sell “next month” January 2020, for tax planning purposes.
At that point, the FA allegedly made the unsuitable recommendation that our client continue to “hold” the securities in the accounts he managed as her investment adviser.
Once again, the FA alleged recommendation was not only misleading by omission but also a personal and undisclosed conflict of the FA with our client’s best interest.
We alleged he knew if he sold $3 million in securities that not only would he lose a substantial amount of income on the total assets he managed, as well as income he received due to the large credit line balances (he never told her about), but that she would incur penalties (the contract “breakage fees” he also allegedly never told her about) in connection with paying down the UBS fixed interest credit lines.
The FA also allegedly did not tell our client that he was also trying to maximize the amount of his deferred compensation bonus which was based upon assets in his clients’ accounts.
In December 2019, once again, we alleged the FA put his personal interest ahead of what was in our client’s “best interest.” Unfortunately, our client listened to the FA and his plan to “wait a month” to eliminate $3 million of the debt they had long planned to pay down with the sales proceeds; she followed his alleged unsuitable “hold” recommendation.
By January 2020, the FA allegedly knew our client was relying exclusively upon him to make all of the investment decisions, to monitor her accounts, and report all of the activity; and we alleged our client was justified in doing so given the $150,000 in management fees, commissions, and other income she paid UBS and him every year.
So, when the FA allegedly told our client in January that he was implementing his plan to sell securities in the accounts he managed and paying down the debt, she believed him. But he allegedly did not tell her how little he sold and that he actually used some of the sales proceeds to purchase more securities in her accounts.
In January and February 2020, we alleged that the FA was privy to all the UBS market research and other third-party research regarding market conditions and looming risks in the marketplace. We alleged he had all the vital account information for our client’s accounts at his fingertips, including the margin condition of those accounts.
The FA did not require our client’s instructions to buy or sell any securities within the accounts he managed with discretionary authority and he allegedly did not ask for her authority in the other accounts he allegedly managed without discretionary authority on a de facto basis for commissions.
There were millions in very liquid securities in Claimants’ accounts that could have been liquidated to pay down $3 million in outstanding credit lines. Instead, the FA allegedly chose not to sell them and pay down the debt in derogation of his client’s instructions and his pre-existing “fiduciary duties” as the investment adviser and investment portfolio manager charged with the responsibility to monitor, safeguard, and protect Claimants and their assets from loss.
Instead, we alleged the FA chose to breach his “fiduciary duties” to his clients and continued to speculate in the stock market in Claimants’ over-leveraged securities accounts heavily invested in stocks, mutual funds, exchange traded funds, and volatile market-linked structured notes, which he knew were vulnerable to margin calls at UBS’ whim.
We alleged a “prudent” investment adviser mindful of his “fiduciary duties” would never have recommended or ever allowed that amount of leverage to continue to exist in his clients’ accounts regardless of his clients’ instructions during that time period.
In January and February 2020, we alleged the FA was duty-bound as a “fiduciary” to liquidate and reduce the debt in Claimants’ accounts with or without our client’s instructions.
Instead, he allegedly chose to breach his fiduciary duties by not only failing to liquidate but by purchasing more securities in Claimants’ accounts in January and February 2020.
On February 20, 2020, the stock and bond markets were rattled by the beginning of a selloff that was precipitated by the spread of Covid-19 around the world and fear of what could happen to the economy in not only the United States but the world.
The volatility continued downward during the week of February 24 to 28 and early March, but the FA allegedly took zero action to protect Claimants’ accounts from loss. In fact, he allegedly did the opposite by purchasing more securities in Claimants’ already overleveraged accounts.
It was not until March 11th that our client realized the FA had not followed her instructions to sell the $3 million of securities and pay down the debt with the sales proceeds. She received notice of UBS margin calls as well as notices sales of securities in the accounts.
Our client contacted the FA and eventually she learned that one of the reasons for his failure to sell and pay down the debt was the undisclosed “breakage fees,” which she was now going to incur after the securities were forcibly liquidated at significantly lower prices to pay down the credit lines.
To say our client was upset with the FA would be an understatement! Had the FA followed our client’s instructions and liquidated $3 million of her securities and paid down the debt in December 2019 or even “one month” later as he promised, she would have retained significant profits on securities she held for years, not realized losses on others, and most probably would not have been subject to any margin calls or forced liquidation of securities at fire sale prices.
The forced liquidations and realized losses also deprived our client of the opportunity to participate in the recovery that followed in April through June 2020.
Had the FA even acted after the first sign of selloff on February 20th, he could have avoided much of the lost equity in Claimants’ accounts. It was not until April 2020 that he actually completed the sale of $3 million of the securities our client allegedly requested to be sold in December 2019, which after much angst were sold without “breakage fees,” adding insult to the injury he caused which cannot be fully calculated at this time without more information.
It is important for all to understand that UBS and the FA, who served our client not only in a broker-dealer capacity but in their capacity as federal registered investment advisers.
This is how UBS and the FA held themselves out to the public and to her specifically from the inception of the relationship.
Our contracted with them as investment advisers and paid them periodic fees to continuously provide investment advice and to continuously monitor and manage her accounts in a manner that would always be in her best interest.
The fact that Respondent, the FA, and others on his team were investment advisers is an important distinction in this case because an investment adviser is unequivocally a “fiduciary” who has a special relationship with the client and held to a higher standard of care.
The U.S. Supreme Court has held that an adviser’s fiduciary duty is imposed in recognition of the nature of the relationship between an adviser and its client—a relationship of trust and confidence. SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194 n. 2 (1963).
There are no ifs or buts in this case about whether Respondent and its employees owed our client any fiduciary duties, including, but not limited to, a duty of care and a duty of loyalty and duty to avoid and at the very least to disclose all conflicts of interest.
As a result of a the FA’s alleged acts and omissions, UBS is being sued by our client for alleged violations of Chapter 517, Florida Statutes; Chapter 518, Florida Statutes; Chapter 736, Florida Statutes; the Investment Advisers Act of 1940 and the FINRA Code directly and indirectly in breach of their contracts to follow the FINRA Code.
In addition, we alleged that such acts and omissions constituted common law fraud; constructive fraud; negligent misrepresentation; breach of fiduciary duty; professional negligence; negligent management; negligent supervision; and fraudulent concealment.
We need your help in proving a pattern of unsuitable recommendations by UBS and the FA to take out securities backed loans in the form of variable and/or fixed credit lines.
We allege and firmly believe that the use of such credit lines involves speculation which our client and we suspect many other UBS clients did not understand or desire in their accounts.
If you received similar recommendations or had a similar experience with UBS and/or the FAs at the Bonita Springs, Florida and Sylvania, Ohio offices, please call us toll-free 1-800-732-2889 (1-800-SEC-ATTY).
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