UBS Advisory Firms Enters Into $17.5 Mln Settlement Over Fund's Strategy Change

(RTTNews) - The U.S. Securities and Exchange Commission announced that two UBS advisory firms have agreed to settle charges arising from their roles in failing to disclose a change in investment strategy by UBS Willow Fund LLC, a closed-end fund they advised.

UBS Willow Management LLC and UBS Fund Advisor LLC agreed to pay a total of approximately $17.5 million, more than $13 million of which will be returned to harmed investors.

According to an SEC order instituting a settled administrative proceeding: UBS Willow Management, a joint venture between UBS Fund Advisor and an external portfolio manager, marketed the UBS Willow Fund as one that primarily invested in distressed debt, a strategy predicated on the debt increasing in value. From 2000 through 2008, UBS Willow Management invested the fund's assets consistent with the strategy described in the offering and marketing materials.

UBS Willow Management changed course in 2008 and instead of focusing on investments in debt issued by troubled companies, it had the fund purchase large quantities of credit default swaps, a strategy predicated on the debt decreasing in value. The fund started incurring big losses due to its holdings of credit default swaps, which rose from less than 2.6% of the fund's market value in 2008 to more than 25% by March 2009. The fund continued to perform poorly due to the change in strategy and was liquidated in 2012.

The SEC's order finds that UBS Willow Management negligently violated the antifraud provisions of the federal securities laws and that UBS Fund Advisor failed to supervise UBS Willow Management. Without admitting or denying the charges, UBS Willow Management and UBS Fund Advisor agreed to be censured and to jointly and severally pay $17.5 million, consisting of $8.2 million in disgorgement of advisory fees, $1.4 million in pre-judgment interest, a $3 million penalty, and $4.9 million to compensate investors for losses. The disgorgement and investor compensation amounts totaling approximately $13 million will be distributed to affected investors.