UBS to Pay $10 Million for Violating Retail Municipal Bond Rules

SEC Announces UBS Settlement Along With Cease-and-Desist Proceedings

On July 20, 2020, the U.S. Securities and Exchange Commission (SEC) announced that an agreement had been reached in its investigation into retail, municipal bond violations by UBS Financial Services, Inc (“UBS”). According to the SEC press release, UBS agreed to pay more than $10 million to resolve the charges. 

A cease-and-desist order issued by the SEC found that UBS violated the “disclosure, fair dealing, and supervisory provisions of Municipal Securities Rulemaking Board Rules G-11 (k), G-17, and G-27, and also failed reasonably to supervise within the meaning of Section 15(b)(4)(E) of the Securities Exchange Act of 1934.” As part of the agreement, UBS must pay a $1.75 million penalty, over $1.5 million in prejudgment interest, and disgorge $6.74 million of ill-gotten gains.

The SEC’s investigation stemmed from a four-year period (2012-2016) when UBS allocated bonds intended for retail customers to “flippers,” despite rules requiring that retail investors be given the highest priority on certain municipal bonds. The flippers who were not eligible for retail priority then immediately resold the bonds for a profit. According to the release, “UBS registered representatives knew or should have known that flippers were not eligible for retail priority.”

This is not the first time that the SEC has brought charges against broker-dealers or registered representatives regarding retail muni bond rules violations. 

• In April 2020, the SEC issued a cease-and-desist order against Boenning & Scattergood, Inc. and two of its registered representatives for the same abuses. 
• In September 2019, the SEC announced a settlement with former Wells Fargo Clearing Services, LLC trader Thomas C. Muldoon for failing to prioritize retail customer orders in the allocation of new issue municipal bonds.
• In December 2018, the SEC found that Chris D. Rosenthal, a former registered representative with UBS, engaged in “fraudulent trading practices,” allowing flippers posing as retail investors to obtain municipal bonds.
• In August 2018, the SEC filed charges against two firms and 18 individuals in a similar scheme allowing flippers often posing as retail investors to gain priority in municipal bond offerings.

The SEC also instituted individual settlement proceedings against two UBS registered agents in actions related to the current investigation. UBS registered agents William S. Costas and John J. Marvin consented to the SEC orders paying civil penalties of $25,000 each and disgorgement of $16,585 and $27,966, respectively.

When a broker-dealer or its registered representative violates state or federal law, they should be held accountable. Levin Law investigates and files lawsuits and arbitration claims against broker-dealers that violate their duties to customers causing financial damages.  

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If you have suffered losses due to a broker’s misconduct or firm’s failure to supervise, contact Levin Law for a free case evaluation at (305) 402-9050. You can contact managing attorney Brian Levin at contact@levinlawpa.com or on the firm’s website. Most cases are accepted on a contingency-fee basis, meaning you do not pay Levin Law’s attorney fees unless there is financial compensation recovered on your behalf.

About Levin Law

Levin Law is a premier national class action, securities, commodities, and futures dispute resolution law firm.  Brian Levin, Levin Law’s managing attorney, has obtained settlements and recoveries in excess of $100,000,000 in assets through arbitration and litigation for individual and institutional investors throughout the country and the rest of the world. Levin Law represents retirees, individual investors, high-net-worth investors, ultra-high-net-worth investors, institutions, family offices, trusts, publicly held companies, and others.