According to the U.S. Securities and Exchange Commission (“SEC”) the SEC filed an enforcement action against UBS AG, charging the firm with acting as an unregistered broker-dealer and investment adviser. The SEC's complaint, filed in the U.S. District Court for the District of Columbia, alleges 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. UBS agreed to settle the SEC's charges by consenting to the issuance of a final judgment that permanently enjoins UBS and orders it to disgorge $200 million.
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 to $140 million per year.
The SEC also alleges 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 alleges 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.
In connection with a related criminal investigation, UBS has entered into a deferred prosecution agreement with the Department of Justice pursuant to which UBS will pay an additional $180 million in disgorgement, as well as $400 million in tax-related payments.
The SEC's investigation is ongoing.