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BrokeAndBroker: UBS gets off easy

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Feb 19, 2009 12:41 pm


An irreverent Wall Street Blog
by Bill Singer Subscribe to RSS Feed: Blog Home | Past Entries UBS: You and Us (keep it quiet...we're in this jam together) Written: February 18, 2009

By Bill Singer

From at least 1999 to 2008, UBS AG (UBS) acted as an unregistered broker-dealer and investment adviser to thousands of United States cross-border clients to facilitate the ability of those clients to maintain undisclosed accounts in Switzerland and other locations outside of the United States, which enabled those clients to avoid paying taxes related to those accounts.

That allegation is contained in an 11 page Complaint filed by the Securities and Exchange Commission in the United States Court for the District of Columbia. Click on the link and read it.

And it gets even more disgusting.

From 2001 through 2008, as a result of its provision of unregistered broker-dealer and investment advisory services to United States cross-border clients, UBS had ill-gotten gains of at least $380 million.  During the relevant period, UBS's United States cross-border business provided unregistered securities-related and investment advisory services to accounts of at least 11,000 to 14,000 United States cross-border clients. The United States cross-border business generated approximately $120 to $140 million in annual revenues for UBS.

This was a lovely little profit center for UBS. And what did this august firm do about this tawdry business?  Well, UBS took action to conceal its use of United States jurisdictional means to maintain its cross-border business with United States cross-border clients. Among other things, client advisers typically traveled to the United States with encrypted laptop computers and received training on how to avoid detection by United States authorities of the client advisers' activities in the United States. UBS client advisers used the encrypted computers to provide account-related information to United States cross-border clients, to show marketing materials for securities products to those clients, and occasionally to communicate orders for securities transactions to UBS in Switzerland.

Yeah, not only did UBS apparently know it was doing something wrong, but it used encryption to further its conduct. 

An SEC Press Release: UBS Agrees to Pay $200 Million to Settle SEC Charges for Violating Registration Requirements (February 19, 2009) states that UBS agreed to settle the SEC's charges by consenting to the issuance of a final judgment that permanently enjoins UBS and orders it to disgorge $200 million. In connection with a related criminal investigation, UBS has entered into a deferred prosecution agreement with the Department of Justice pursuant to which UBS will pay an additional $180 million in disgorgement, as well as $400 million in tax-related payments.

I would ask that you look at a relatively minor self-regulatory case from January of this year.  Let's look at the recent FINRA case against Harvest Capital Investments, LLC and Dennis Cotto 2005001305701/January 2009  In that case the member firm was expelled and the responsible individual barred.  Notably, that relatively minor case involved, as with UBS, the conduct of an unregistered person engaging in activity requiring registration. 

You tell me why that small firm got hammered (and let's be clear: it got what it deserved as far as I'm concerned), but the behemoth UBS just pays a fine and agrees to clean up its act?

The way I see it, it's sort of like the UBS commercials on television. You and Us.  Except the off camera commentary is that you and us are in this together -- let's keep our mouths shut and count the dough, and no one rats if we get caught.

I mean, really, what the hell does it take to shut a major brokerage firm down?

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