UBS Group AG agreed to pay $ 17.5 million to settle charges from the U.S. Securities and Exchange Commission that two of the Swiss bank’s advisory firms failed to disclose a change in investment strategy by a fund focused on distressed debt.
UBS Willow Management LLC and UBS Fund Advisor LLC agreed to be censured, the SEC said. The settlement includes more than $ 13 million that would be returned to the affected investors.
UBS neither admitted nor denied the SEC’s findings. A UBS spokesman said the company was pleased to have resolved the matter.
UBS Willow Management, a venture between UBS Fund Advisor and an external portfolio manager, made investments in the UBS Willow Fund from 2000 through 2008 that were consistent with a strategy described in its offering and marketing materials, which was based on the debt increasing in value, the SEC said.
However, starting in 2008 UBS Willow Management shifted the fund’s investments to include large quantities of credit default swaps, a bet that the value of the related debt would decline, without adequately disclosing the shift in investment strategy, the SEC claimed.
The fund—which was liquidated in 2012—was hit by large losses related to its credit default swaps holdings, which grew to more than 25% of the fund’s market value by March of 2009 from less than 2.6% in 2008, the SEC said.
The SEC also alleged that UBS Fund Advisor was aware of the change in investment strategy and failed to supervise UBS Willow Management adequately.
Write to Tess Stynes at [email protected]