U.S. News

New York Sues UBS Unit For Fraud


New York Attorney General Eliot Spitzer sued UBS Financial Services, accusing the brokerage of defrauding thousands of customers by steering them into fee-based accounts.

UBS steered clients from regular brokerage accounts into a program known as InsightOne, which charges fees based on account assets rather than trading activity, according to the
lawsuit filed in New York State Supreme Court in Manhattan.

UBS denies the charges and "intends to defend itself vigorously in this matter," UBS said in a statement.

Spitzer's office said that UBS steered customers into these accounts who would have been better served in traditional, commission-based accounts.

"Asset-based fee accounts are inappropriate for investors who rarely trade securities or hold significant amounts of cash, no-load mutual funds or other similar assets," the attorney general's office said in a statement.

Spitzer's office also accused UBS of paying brokers who moved customers into the wrap accounts, creating a conflict of interest. The brokerage, a unit of Swiss banking company UBS also encouraged brokers to engage in extra trading activity, or churning, to meet account activity minimums.

As a result, InsightOne customers as a group paid tens of millions of dollars more in fees than they would have paid in traditional brokerage commissions. One 91-year-old client paid $35,000 in an account that made four trades over two years, the lawsuit said.

UBS says InsightOne saved customers "hundreds of millions of dollars, in aggregate, over what they would have paid in full commissions" since the program was started in 1999.

The lawsuit charged UBS with violations of state anti-fraud laws, common law fraud and breaches of fiduciary duty. The complaint seeks unspecified disgorgement, damages and restitution.