SEC Settles Charges With 2 UBS Advisory Firms

Investing

Published: October 20, 2015 12:35 pm

The U.S. Securities and Exchange Commission (SEC) has announced that two UBS advisory firms have agreed to settle charges stemming from their roles in failing to disclose a change in investment strategy by UBS Willow Fund.

Ultimately UBS Willow Management and UBS Fund Advisor will pay a total of roughly $17.5 million, and more than $13 million of this sum will be returned to harmed investors.

Without admitting or denying the charges, both firms agreed to be censured and to jointly and severally pay the sum. The sum broke down to $8.2 million in disgorgement of advisory fees, $1.4 million in prejudgment interest, a $3 million penalty and $4.9 million to compensate investors for losses.

According to an SEC order instituting a settled administrative proceeding:

UBS Willow Management did not provide adequate disclosure of the change in investment strategy to the fund’s investors or board of directors. A marketing brochure it provided to potential investors from fall 2008 to May 2009 misstated the fund’s strategy and investor letters it sent from fall 2008 to August 2011 contained false or misleading information about the fund’s exposure to credit default swaps. UBS Willow Management also caused the fund to misrepresent its investment strategy in shareholder reports filed with the SEC from fall 2008 until the fund’s liquidation in 2012.

UBS Fund Advisor, which retained ultimate control over the fund, was aware of the change in investment strategy and failed to supervise UBS Willow Management by allowing the change to occur without adequate disclosure to the fund’s investors or board.

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Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit, said:

Advisers must provide investors and fund boards with accurate information about a fund’s investment strategy. Here UBS Willow Management completely reversed the fund’s strategy – from investing in distressed debt to betting against it – without adequately disclosing the change.

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