Facts

Claimants Donald and Eileen Bowman purchased an ownership interest in a small Oregon sawmill. Their interest was purchased on the recommendation of their UBS Financial Services Inc.'s financial advisor, [REDACTED]. Their advisor was also an investor in the mill.

Claimants had been clients of the financial advisor at his previous brokerage firm and they took their brokerage accounts to UBS when he was hired by UBS. The financial advisor had become involved in the mill before joining UBS.

CLAIMANT'S CONTENTIONS:
Claimants alleged the financial advisor was a fiduciary and his recommendation was improper, unreasonable, unsuitable and a breach of his fiduciary obligations. Claimants further alleged that UBS had a duty to supervise, train and monitor the financial advisor and failed to do so.

Claimants sought to recoup all of the funds they invested in the mill, additional funds invested in a successor business in their attempt to salvage their investment in the mill and statutory interest and attorneys fees under the Washington State Securities Act.

RESPONDENT'S CONTENTIONS:
Respondents contended that UBS had reviewed and approved the advisor's investment in this outside business activity, but only upon strict conditions. These conditions included explicit prohibitions on the advisor involving any of his clients in this outside activity. Nevertheless, after claimants became clients at UBS, the financial advisor promoted the sawmill to claimants, and claimants made a substantial investment in the mill, becoming principle owners, along with the financial advisor and others.

UBS alleged it acted prudently and reasonably in its initial investigation of the advisor's request for permission to remain invested in the saw mill when he joined UBS and in monitoring his activities as a financial advisor, but claimants and the financial advisor engaged in a number of deceptive strategies to avoid the possibility of timely detection by the UBS compliance system.

Settlement Discussions

Claimants demanded $1.5 million, and respondent offered $0.

Damages

Claimants sought $2,782,278 in net out-of-pocket investment losses plus statutory interest.

Result

All claims were dismissed, and all forum fees awarded against claimants in favor of UBS. The Panel concluded that UBS acted diligently and responsibly under all of the circumstances presented, and the "selling away" activity by the financial advisor was not known to UBS and was deliberately concealed from UBS by the financial advisor and claimants. The Panel concluded UBS had a robust and effective compliance system with sufficient checks and balances to monitor any improper activity by UBS financial advisors.

Other Information

ARBITRATORS: Bill Bender, James Dawson, Linda Thomas. FILING DATE: July 1, 2013.