UBS denies "defrauding" US customers

Eliot Spitzer is taking aim at UBS shortly before taking over as governor of New York Keystone

UBS has hit back at claims that it misled thousands of customers into opening accounts at its US-based brokerage that entailed higher fees than traditional trading.

This content was published on December 13, 2006 minutes

Switzerland's largest bank accused the New York Attorney General's office of cherry picking information to support its case against UBS Financial Services while ignoring other valid evidence.

UBS was slapped with a writ on Tuesday suing it for fraud and breaches of fiduciary duty. The bank is alleged to have duped some clients into annual fee-based accounts against their financial interests.

The alleged practice cost UBS clients tens of millions of dollars in fees, the lawsuit states.

The dispute revolves around the bank's InsightOne programme that charges customers an annual asset-based fee rather than commissions per trade. Spitzer contends that thousands of these account holders, who trade infrequently, are paying far more than they should be.

In addition, the suit claims the bank made incentive payments to brokers who moved investors into InsightOne accounts and encouraged excessive trading in this area.

The bank denies the charges, claiming that overall customers have benefited to the tune of hundreds of millions.

And it expressed anger at the way Attorney General Eliot Spitzer has highlighted individual cases, such as a 91-year-old client who paid $35,000 (SFr42,052) into an account that made four trades in two years.

UBS hit back by accusing Spitzer of failing to "review or consider relevant data that supports the firm's position prior to filing the complaint".

Difficult to prove

"UBS categorically denies that the programme was part of a scheme to disadvantage clients, and intends to defend itself vigorously in this matter," the bank said in a statement.

"The InsightOne programme was designed to satisfy those clients who sought alternatives to the industry's traditional commission-based accounts. While InsightOne is not a discount programme, since the programme's inception in 1999 UBS clients have saved hundreds of millions of dollars, in aggregate, over what they would have paid in full commissions."

The bank had predicted legal action and warned of the eventuality in its third quarter financial report.

Zurich Cantonal Bank analyst Andreas Venditti told swissinfo that the irregular trading patterns of many customers can make it difficult to determine whether they have been ripped off or not.

"Some investors are better off in annual fee-based accounts and others benefit from being charged commissions for each transaction. It depends on how much they trade," he said.

"But how do you measure this if someone is usually very active and then decides to wind down for a couple of months? It is simply not possible to keep switching from one account to another every few months.

"It is probably a question of how the product was sold and how much say the client had when choosing their account."

UBS Financial Services is not the first brokerage to be hit with such charges in the US. Regulators there have pursued a number of other institutions that allegedly allowed low activity customers to stay in annual fee-based accounts.

Morgan Stanley was fined $6.1 million (SFr7.33 million) after being found guilty of similar breaches last year. A similar fine would not hurt UBS financially but would damage its reputation, Venditti added.

swissinfo, Matthew Allen with agencies

In brief

Last year US investors had more than $268 billion (SFr322 billion) in fee-based programmes industry-wide, according to UBS.

InsightOne accounts constitute around 3.5% of UBS's US brokerage accounts. Such accounts offering more personal advice on portfolio management are becoming increasingly popular worldwide.

New York Attorney General Eliot Spitzer last month was elected as governor of the city, a post he will take up at the beginning of next year.

End of insertion
In compliance with the JTI standards

In compliance with the JTI standards

More: SWI certified by the Journalism Trust Initiative

Contributions under this article have been turned off. You can find an overview of ongoing debates with our journalists here. Please join us!

If you want to start a conversation about a topic raised in this article or want to report factual errors, email us at

Share this story

Change your password

Do you really want to delete your profile?