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UBS to pay US$17.5m in SEC settlement over fund's strategy change
[NEW YORK] UBS AG has agreed to pay US$17.5 million to resolve charges stemming from the role two of its advisory firms played in allegedly failing to disclose a change in investment strategy by a fund focused on distressed debt, US regulators said Monday.
The settlement with the US Securities and Exchange Commission stemmed from a change in investment strategy at UBS Willow Fund LLC, a closed-end fund the UBS units advised, amid the 2008 financial crisis.
Rather than investing in distressed debt on the theory it would increase in value in 2008, UBS Willow Fund shifted to credit default swaps, betting credit market conditions would deteriorate, the SEC said.
The fund was advised by UBS Willow Management, a joint-venture between UBS Fund Advisor and Bond Street Capital, a hedge fund the SEC says is no longer in business.
The shift to investing in credit default swaps was not adequately disclosed to investors, the SEC said, despite its holdings in the swaps rising from less than 2.6 per cent of the fund's value in 2008 to 25 per cent in March 2009.
The change ultimately resulted in significant losses as credit markets improved beginning in April 2009, leading to the fund's liquidation in 2012, the SEC said.
The SEC said UBS Willow Management negligently violated antifraud provisions of federal securities laws and UBS Fund Advisor failed to supervise the fund.
Without admitting or denying responsibility, they agreed to pay US$17.5 million, of which $13 million will go to affected investors, the SEC said.
UBS did not immediately respond to a request for comment.