Feb 12 (Reuters) - UBS AG has avoided liability for a former broker’s alleged move to steer a Seattle-based couple to buy into a now-defuct sawmill after an arbitration panel found that the clients and their broker hid the investment from the bank.
Donald and Eileen Bowman had sought more than $3 million in damages from UBS Financial Services Inc for allegedly failing to supervise the couple’s now former broker, Ted Greene, according to an arbitration decision posted on the Financial Industry Regulatory Authority’s (FINRA) website this week.
But the three FINRA arbitrators disagreed with the Bowmans, ruling that the couple and Green had engaged in “deceptive strategies” to conceal their investment activities involving the sawmill from UBS, according to the Feb 9 ruling.
The case is an example of challenges firms can face when brokers break industry rules by soliciting clients to buy investments that the firms themselves do not offer. Some investors try to recoup losses from such deals in arbitrations against brokers’ firms, alleging shoddy supervision.
The arbitrators found that UBS had a “robust compliance program” aimed at avoiding such situations, known as “selling away.” But the couple made a big effort to conceal from the bank their investment in the now defunct factory that sawed logs to make boards in St. Helens, Oregon.
For example, they used accounts at other financial institutions to process checks related to the mill, while paying other bills through UBS. They also communicated with Greene about the sawmill through a non-UBS email account he established, the panel said.
Donald Bowman “acknowledged the long period of concealment” after the extent of his losses had sunk in, the panel wrote.”
Eileen Bowman declined comment for the couple, although the couple’s lawyer Steven Wilker expressed disappointment with the ruling and said his clients disagreed with the arbitrators. A UBS spokeswoman said the firm is pleased with the decision.
Greene, who could not be reached for comment, left UBS in 2011 and no longer works in the securities industry, according to a regulatory document. He had a majority ownership stake in the mill before joining UBS in 2011, according to the decision and a regulatory filing.
UBS approved Greene’s involvement in the lumber-cutting plant when he joined the firm but prohibited him from involving clients in the venture, according to the decision. Nonetheless, Greene promoted the mill to the Bowmans after they became his clients. (Reporting by Suzanne Barlyn; Editing by Christian Plumb)