UBS Financial Services Inc. (CRD #8174, Weehawken, New Jersey)

Municipal Bond Fraud, Misrepresentation and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.

November, 2011:

UBS Financial Services Inc. (CRD #8174, Weehawken, New Jersey) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $300,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to reasonably supervise the cross-trading of municipal bonds because it lacked adequate policies and procedures to monitor the trades. The findings stated that an individual exercised discretion to engage in short-term trading of municipal bonds for customer accounts, and many of these trades were suspicious since they resulted from cross-trades of municipal bonds between the individual’s customer accounts, where the individual solicited both sides of the trades; the individual was a high-producing broker whose high net-worth clients often gave discretionary trading authority. The findings also stated that although the firm identified the individual’s trading as requiring further investigation, it did not take sufficient steps to address the red flags. The findings also included that the firm provided no written or verbal guidance regarding what criteria should be utilized to determine whether a cross trade is beneficial to both clients, or who should make this determination; the standard to determine whether a cross-trade could be deemed beneficial to customers on both sides of a respective trade was unclear.

FINRA found that the firm conducted annual audits on the firm’s municipal bond trading desks and deficiencies in supervision of municipal cross-trades were identified. FINRA also found that after the deficiencies in supervision of municipal cross-trades were identified through the annual audit, the firm’s compliance department conducted reviews of the individual’s cross-trading and created spreadsheets identifying municipal bond cross trades where both sides of the trades were marked as solicited. In addition, FINRA determined that these reviews were provided to branch management for their review, and the branch managers failed to adequately review these cross-trades for appropriateness. Moreover, FINRA found that the firm’s compliance department identified the individual’s trading as requiring further investigation and generated multiple exception reports indicating a possible pattern of improper short-term trading for multiple customer accounts, but the firm did not take sufficient steps to address these red flags; because of these failures, the individual was able to engage in a pattern of excessive and unsuitable cross-trading. Furthermore, FINRA found that although the individual and the firm earned transaction compensation on these trades, the transactions resulted in losses to certain customers. (FINRA Case #2007009401302).