Securities Law Updates | New Settlements and Verdicts

March 11, 2009

UBS to Pay a Total of $0.98B to Settle SEC and DOJ Charges

Securities and Exchange Commission v. UBS AG
No. 1:09-CV-00316 (JR), U.S. District Court for the District of Columbia, 2/18/2009

UBS to Pay a Total of $0.98B to Settle SEC and DOJ Charges


Zurich-based banking giant UBS AG (“UBS”) has agreed to settle charges filed by the Securities and Exchange Commission (“SEC”) that it acted as an unregistered broker-dealer and investment adviser. Specifically, UBS consented to the issuance of a final judgment that permanently enjoined it and ordered 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 (“DOJ”) pursuant to which UBS will pay $780 million in fines, penalties, interest and restitution in tax-related payments. The SEC filed its civil complaint in the U.S. District Court of the District of Columbia, while the DOJ filed the criminal charges in the U.S. District Court for the Southern District of Florida.

Detailed Summary:

The SEC’s complaint alleged that UBS’s conduct facilitated the ability of certain U.S. clients to maintain undisclosed accounts in Switzerland and other foreign countries, which enabled those clients to avoid paying taxes related to the assets in those accounts.

As alleged in the SEC’s complaint, from at least 1999 through 2008, UBS acted as an unregistered broker-dealer and investment adviser to thousands of U.S. persons and offshore entities with United States citizens as beneficial owners. UBS had at least 11,000 to 14,000 of such clients and held billions of dollars of assets for them. The U.S. cross-border business provided UBS with revenues of $120 million to $140 million per year.

The SEC also stated in its complaint that UBS conducted that cross-border business largely through client advisers located primarily in Switzerland, who were not associated with a registered broker-dealer or investment adviser. These client advisers traveled to the U.S., on average, two to three times per year on trips that generally varied in duration from one to three weeks. In many instances, the client advisers attended exclusive events such as art shows, yachting events, and sporting events that were often sponsored by UBS, for the purpose of soliciting and communicating with United States cross-border clients. UBS also used other U.S. jurisdictional means such as telephones, facsimiles, mail and e-mail to provide securities services to its U.S. cross-border clients.

The SEC further alleged that UBS was aware that it was required to be registered with the SEC. UBS took action to conceal its use of U.S. jurisdictional means to provide securities services. Among other things, client advisers typically traveled to the U.S. with encrypted laptop computers that they used to provide account-related information, to show marketing materials for securities products, and occasionally to communicate orders for securities transactions to UBS in Switzerland. Client advisers also received training on how to avoid detection by U.S. authorities of their activities in the U.S.

As charged in the SEC’s complaint, as a result of its conduct, UBS violated Section 15(a) of the Securities Exchange Act of 1934 and Section 203(a) of the Investment Advisers Act of 1940. To settle these charges, UBS has consented to the entry of a final judgment that (1) permanently enjoins UBS from further violation of those provisions; (2) orders it to pay $200 million in disgorgement, to be paid together with an additional $180 million in disgorgement that will be paid as part of a settlement of a related criminal investigation; and (3) orders UBS to comply with its undertakings to terminate its U.S. cross-border business and to retain an independent consultant to conduct an examination of UBS’s termination of the business.

As part of the deferred prosecution agreement with the DOJ, UBS, based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), has agreed to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS’s cross-border business. Under the deferred prosecution agreement, UBS has also agreed to expeditiously exit the business of providing banking services to United States clients with undeclared accounts. UBS has further agreed to pay $780 million in fines, penalties, interest and restitution.

A criminal information filed by the DOJ in the district court of Southern Florida charged UBS with conspiring to defraud the United States by impeding the IRS. According to court documents, in 2000, after it purchased the brokerage firm Paine Webber, UBS voluntarily entered into an agreement with the IRS that required UBS to report to the IRS income and other identifying information for its United States clients who held United States securities in a UBS account.

Court documents alleged that the agreement also required UBS to withhold income taxes from United States clients who directed investment activities in foreign securities from the United States. The information further asserts that, in order to evade those new reporting requirements, employees and managers within the cross-border business, with the knowledge of certain UBS executives, helped United States taxpayers open new UBS accounts in the names of nominees and/or sham entities. According to court documents, the assets of the individual’s accounts were then transferred to the newly created accounts, as to which the U.S. taxpayer would not be identified as a beneficiary.

View a PDF of the settlement

Companies Mentioned

Securities and Exchange Commission


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