October 13, 2015 / 4:20 PM / 4 years ago

UPDATE 3-UBS settles U.S. SEC case over structured notes for $19.5 mln

(Updates to add that UBS did not seek a special regulatory waiver from the SEC in connection with the settlement)

By Sarah N. Lynch

WASHINGTON, Oct 13 (Reuters) - UBS AG will pay $19.5 million to settle civil charges alleging it made false statements to U.S. retail investors in its offering documents for complex structured notes tied to a proprietary foreign currency index, U.S. regulators said on Tuesday.

The case by the Securities and Exchange Commission marks the first ever to focus on misstatements involving structured notes, a complex product that consists of debt securities and derivatives pegged to the performance of other instruments.

Investors in structured notes get their return based on the performance of the derivative over the life of the note.

A UBS spokeswoman said the company is pleased to resolve the case.

“UBS is firmly focused on the future with an unwavering commitment to upholding a culture of doing the right thing,” she said.

The bank neither admitted nor denied the charges under the terms of the settlement, and the SEC said it substantially cooperated with regulators during the investigation.

The SEC’s case against UBS focused on structured notes tied to the V10 Currency Index with Volatility Cap.

The regulator said UBS told investors that the notes relied on a “transparent” and “systematic” currency trading strategy that used market prices.

In fact, the SEC said, UBS did not reveal that hedging trades by the bank reduced the index price by about five percent.

The SEC has recently stepped up its focus on structured notes generally and has warned investors about potential risks.

Andrew Ceresney, the SEC’s director of enforcement, told reporters on Tuesday that the agency has a number of active investigations involving structured notes.

In settling the case with the SEC, a UBS spokeswoman said the bank opted not to apply for a regulatory waiver to continue operating as a “well-known seasoned issuer” or WKSI.

Such a tag permits public companies to raise capital by issuing securities “off the shelf” - a streamlined process which is speedier and more convenient.

The bank used its special status as a WKSI to issue the structured note offerings at the heart of the case, Ceresney said Tuesday.

Such waivers have become a flashpoint at the SEC over the past year, with SEC Democratic Commissioner Kara Stein calling on the agency to start denying waiver requests in cases where banks repeatedly break the law.

To date, at least two other big banks - Credit Suisse and Bank of America - have lost their WKSI status after each resolving cases with the Justice Department. (Reporting by Sarah N. Lynch; editing by Susan Heavey and Andrew Hay)

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