Client sues UBS over mis-selling of V10 Enhanced FX Carry Strategy

UBS is one of the world’s largest FX dealers, and was recently subject to the international investigation into potential FX benchmark manipulation, the result of which was a severe penalty, issued by Switzerland’s regulatory authority, FINMA.

The litigation has commenced again for UBS, this time as a result of a lawsuit issued by one particular client, Walter Michaelson, who claims that he was sold a complex financial product which he did not ask for, and which was not explained correctly, that eventually lost him more than $100,000.

Mr. Michaelson has filed his lawsuit in a federal court in Florida, challenging Switzerland’s largest bank relating to its V10 Enhanced FX Carry Strategy, which Mr. Michaelson claims was sold to him and other retail investors, along with businesses and fund managers.

In terms of specification, Bloomberg described the product as having been pitched as a high-yielding foreign-exchange investment that used computer algorithms to minimize the risk of losses in periods of volatility. When the European debt crisis began to bear down on the markets in mid-2010, the index to which the notes were tied lost 26% in two years, data compiled by Bloomberg show.

This lawsuit, although brought about by one individual, has now become the subject of investigation by the US Department of Justice, which is examining whether UBS traders deliberately overcharged investors such as Mr. Michaelson by carrying out the currency trades needed to execute the strategy.

“The banks hold all the cards: They create these products, sell them and have full control over what they disclose about them,” said Stephen Elam, a London-based lawyer at Cooke, Young & Keidan LLP in the Bloomberg report.

“In this environment, when interest rates are low and consumers are looking for improved investment returns, these products are inherently prone to mis-selling.”

UBS said in a statement to Bloomberg that the bank plans to defend itself “vigorously” against Michaelson’s claims. A spokesman for Zurich-based UBS declined to comment about the Justice Department investigation.

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