U.S. News

UBS to Pay $23.3 Million in New York Settlement


UBS agreed to pay $23.3 million to resolve accusations the Swiss bank and brokerage steered thousands of inappropriate customers into fee-based accounts, the New York Attorney General's office said on Monday.

UBS , one of the largest brokerages in the United States, plans to reimburse $21.3 million to about 3,000 customers and pay a $2 million penalty to the state. The bank allegedly encouraged customers to switch to fee-based accounts that ended up being more expensive for less active investors than traditional accounts.

Fee-based, or "wrap" accounts, are popular with active traders since customers pay an annual fee based on the value of assets, as opposed to paying commissions for each trade.

Typically brokerages also offer portfolio and other personal finance advice to wrap customers. But the New York lawsuit alleged that UBS placed many individuals into "InsightOne" wrap accounts that cost thousands of dollars in fees, even though these individuals made only handful of trades. Furthermore, the suit said UBS did not deliver financial planning services advertised.

The state also alleged that UBS failed to properly screen customers before recommending fee-based accounts. As a result, customers paid "millions of dollars in unnecessary fees," Attorney General Andrew Cuomo said in a statement.

"UBS convinced customers to rely on its advice and then abused that trust," Cuomo said in a statement. "This major settlement is a win for customers inappropriately pushed into unsuitable brokerage accounts and a warning to the entire industry that customers' interests must come first."

In a statement, UBS said the 3,000 customers in question comprise less than 3 percent of the more than 100,000 fee-based accounts that were active during the period of investigation.

The bank also maintains that thousands of customers are well served by the program and saving money on commissions.

"UBS is disappointed with the (attorney general's) press statement announcing the settlement, which mischaracterizes the program and its operation," the bank said in a statement. Still, "UBS settled this case to avoid protracted litigation."

Cuomo spokesman Jeff Lerner declined to comment on whether other brokerages were under investigation for offering their own version of fee-based accounts.

The lawsuit was filed by New York Governor Eliot Spitzer in Manhattan state court in December, while he was still Attorney General. The suit charged UBS with violations of state anti-fraud laws, common law fraud and breaches of fiduciary duty.