UBS Financial Services Inc., headquartered in Weehawken, New Jersey, has been censured and fined $850,000.00 by the Financial Industry Regulatory Authority (FINRA) because UBS failed to supervise certain representatives’ private securities transactions and failed to supervise transfers of customer funds to third parties. Letter of Acceptance, Waiver, and Consent No. 2021073037102 (July 8, 2024).
The AWC stated that from 2010 to July 2021, UBS’s supervisory system was not adequately designed to ensure compliance with its obligation to monitor fund transfers. This gap in supervision allowed a stockbroker to engage in unauthorized activities without detection.
According to the AWC, securities broker dealers are required to monitor the movement of customer funds to third parties. They also have to address red flags of unauthorized transactions. UBS’s automated surveillance system, which was supposed to flag suspicious activities, did not uncover instances where multiple customers transferred funds to the same third party.
UBS’s failure to identify these transactions meant that the stockbroker could continue executing unauthorized transactions. For instance, between 2010 and 2021, ten of the stockbroker’s customers at UBS invested in fixed annuities. Those customers used their UBS accounts to effect $1,800,000.00 through 64 wire transfers to Company A’s bank accounts. More than $7,200,000.00 was invested in Company A.
Also, in 2016, a sales assistant emailed the stockbroker’s supervisor to waive a wire transfer fee for a customer wiring money to Company A. That supervisor approved the fee waiver without investigating the stockbroker’s involvement with Company A or the legitimacy of the investment.
Additionally, UBS did not investigate instances where multiple customers wired money to Company A within a short period. The regulator stated that in 2021, two unrelated customers wired a collective $47,000.00 from their UBS accounts to Company A. These transactions were flagged for review, but UBS did not look into why two customers were sending money to the same third party.
FINRA stated that the stockbroker’s customers who invested in Company A lost most, if not all, of their investments. UBS finally became alerted to this issue during the time that the stockbroker’s former customers tried to withdraw their investment from Company A. UBS agreed to pay affected customers over $17,000,000.00 in restitution.
FINRA found that UBS violated NASD Rule 3010 and FINRA Rules 2010 and 3110.
