After receiving an $8 million penalty from the SEC, UBS Financial Services became the latest firm to face discipline over unsuitable sales of the complex exchange-traded product known as VXX, the iPath S&P 500 VIX Short-Term Futures ETN, a volatility-linked exchange-traded note.
According to the SEC's $8 million order against UBS, plus an additional $100,000 of disgorgement, some UBS representatives used discretion to transact VXX in customer accounts and then held the products longer than offering documents advised. In addition to the lengthy holding periods, the SEC wrote that the UBS stockbrokers failed to heed the advice of UBS Financial's own ETF Desk, which advised its brokers and advisers to use VXX and similar volatility-linked ETFs and ETNs as short-term investments, which would be consistent with the offering documents.
By holding VXX in customer accounts longer than recommended (in some cases, much longer), according to the SEC, UBS exposed its clients to increased risk of losses or other financial harm. Even though one ETF Desk member in a conference call told UBS that VXX "is only meant as an extremely short trading vehicle, not a way to hedge equity products," the SEC's investigation found that hundreds of UBS accounts ended up holding VXX for longer than a year.
The fine includes discipline for both engaging in the unsuitable behavior that exposed investors to risk and for UBS Financial's failure to adopt and implement adequate supervisory procedures concerning volatility-linked ETPs, such as VXX and other products linked to the CBOE's volatility index VIX.
Previously, Royal Alliance Advisors was fined over $500,000 for deficient supervisory procedures and policies for similar misconduct.
If you invested with a broker or financial adviser at UBS Financial Services, Royal Alliance Advisors, or any other firm that unsuitably sold and held VXX longer than recommended or suffered damages after investing with a representative whose transactions and recommendations were unsuitable given your risk tolerance and time horizon preferences, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.