UBS Financial Services has steered itself into uncharted waters with the SEC (U.S. Securities and Exchange Commission). The commission has discovered fraudulent activities orchestrated by the corporation. Between the period of 2012 – 2016, various municipal bonds that were originally intended for the retail investors were instead allocated to parties that are known in the industry as flippers by Financial Services Inc. They further resold said bonds to several other broker-dealers for private gain, thus breaking rules concerning prioritisation of small investors in bond purchasing.
According to the SEC, the company’s registered representatives have been involved in over 2,000 trades with these so-called flippers enabling them to attain bonds and inappropriately receive greater priority in the process of bond allocation.
The Swiss banks were thus able to acquire bonds for inventory in ways that violated regulations and norms of priority of orders. The federal agency has ordered a $1.7 million fine with a $6.74 million in disgorgement plus a $1.5 million in prejudgement interest and imposed a censure on UBS.
The regulator settled the proceedings with William S. Costas and John J. Marvin too. They are UBS representatives found guilty of negligently issuing retail orders for the bonds on behalf of their flipper consumers. William Costas has even allegedly aided UBS traders in wrongly obtaining bonds from the firm’s inventory through the flippers.
Costas has now settled with the agency to pay a $16,585 fine for disgorgement and interest alongside a civil penalty as well amounting to $25,000. John J. Marvin settled for a disgorgement and interest amount of $27,966 as well as a civil penalty of $25,000 same as Costas, as per their settling with the SEC.
The chief of the Division of Enforcement’s Public Finance Abuse Unit of the SEC; LeeAnn G. Gaunt said, “Retail order periods are intended to prioritize retail investors access to municipal bonds and we will continue to pursue violations that undermine this priority.”
As per the Wall Street Journal, almost $60 billion in newly issued municipal bonds over a period of three years – 2013 and 2017 were sold by clients within the duration of a single day. The Company reportedly has not yet admitted or denied the allegations. But a spokesperson of the firm did say that UBS has rendered its full cooperation to the federal agency and that they were satisfied to resolve this issue.