UBS will pay $17.5 million to settle charges that two of its advisory firms failed to disclose a change in investment strategy to investors, who will receive $13 million of the settlement, the Securities and Exchange Commission announced Monday.
UBS Willow Management, a joint venture between UBS Fund Advisor and Bond Street, an external portfolio manager, marketed the UBS Willow Fund as one primarily investing in distressed debt, the SEC order said. SEC officials said that after following that strategy from 2000 through 2008, the fund changed course and began purchasing credit default swaps, which by 2009 grew to 25% of the fund’s market value. “Ultimately, the CDS exposure resulted in significant losses at the fund and, in part, as a result of those losses, the fund’s board of directors liquidated the fund in 2012,” the SEC order said.
Julie M. Riewe, co-chief of the SEC enforcement division’s asset management unit, said in a statement that UBS Willow Management “completely reversed the fund’s strategy — from investing in distressed debt to betting against it — without adequately disclosing the change” to investors, the board of directors and in SEC filings. UBS Fund Advisor also was charged with failing to supervise UBS Willow Management.
Without admitting or denying the charges, UBS Willow Management and UBS Fund Advisor agreed to be censured and to jointly pay $8.2 million in disgorgement of advisory fees, $1.4 million in pre-judgment interest, a $3 million penalty, and $4.9 million to compensate investors for losses.
“We are pleased to have resolved this matter relating to the UBS Willow Fund,” spokesman Gregg Rosenberg said in an e-mailed statement.