In Focus

January 1, 2007

Financial Service's fee-based account, known as "InsightOne", has come under major attack for customer fraud. New York Attorney General Eliot Spitzer has filed a lawsuit detailing "a scheme by UBS to move inappropriate clients from regular [commission-based] brokerage accounts into InsightOne, despite the program's far higher costs for those investors, by falsely promoting InsightOne as providing personalized advice and other financial planning services."

UBS, in standard fashion, has proclaimed its innocence and vowed to "vigorously defend" the charges. UBS also claims that InsightOne saved some of its customers money. If UBS cannot muster more of a defense, it will miss the mark. That's because Mr. Spitzer has posted on the attorney general's website not only the complaint but incriminating documents that are exhibits to the complaint. The issue isn't whether some investors benefited, it's whether all investors benefited, and Spitzer has assembled an impressive arsenal to show that many customers "paid tens of millions of dollars more in InsightOne fees than they would have paid in traditional brokerage account transactions." That's because investors don't belong in fee-based accounts if they trade infrequently or hold significant amounts of cash (in money market accounts) or no-load mutual funds.

Lured unsuitable investors into the program with false and misleading promises, including the promise of an advice-based account. One UBS broker implored senior executives to "look at our InsightOne brochures and possibly take out the misleading information [relating to advisory services] on the cover;"

Created a conflict of interest for its brokers by giving them a financial incentive to enroll and keep investors in InsightOne even when the program was ill-suited for those investors;

Kept many unsuitable investors in InsightOne by encouraging UBS brokers to "churn" their clients' InsightOne accounts - that is, to engage in additional trading for the purposes of surpassing the minimum trading requirement. One broker wrote to a supervisor in an August 2004 email regarding churning, "[N]ow we have to trade heavy or light to stay within guidelines to keep insight one alive …. How Wrong is that? You are not looking at the best interest of the client." The broker continued: "CONFLICT is all over this." Another broker explained to a senior manager in October 2003: "[I]ncreasing transactions in order to comply with this new policy could be detrimental to many clients, which is not something we want to do. Fee based or not, increasing transactions for the sake of increasing transactions (not for the benefit of the client) is called churning."

Such conduct (if true) simply cannot be tolerated. Attorneys at SNSFE are eager to assist UBS investors receive compensation, through arbitration or litigation nationwide.

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James J. Eccleston is a securities attorney, representing customers as well as brokers and brokerage firms nationwide in arbitration, litigation and regulatory matters. He maintains an informative website at www.FinancialCounsel.com. He is an equity partner with Shaheen, Novoselsky, Staat, Filipowski & Eccleston, and can be reached at 312-621-4400.