UBS settles U.S. SEC case over structured notes for $19.5 million

By Sarah N. Lynch WASHINGTON (Reuters) - UBS AG will pay $19.5 million (13 million pounds) to settle civil charges alleging the bank 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 into structured notes, a complex product that consists of debt securities and derivatives pegged to the performance of other instruments or indices. Investors in structured notes get their return based on the performance of the derivative over the life of the note. "It is critical that large global financial institutions have and implement policies and procedures designed to ensure that all facts relevant to investors are made known to individuals responsible for disclosures," SEC Chair Mary Jo White said in a statement. "UBS is pleased to have resolved this legacy matter with the SEC," a company spokeswoman said. "UBS is firmly focussed on the future with an unwavering commitment to upholding a culture of doing the right thing and reducing operational risks." The bank will neither admit nor deny 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 specifically focussed 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. Earlier this year, it issued an investor bulletin warning people about some of the risks involved. Andrew Ceresney, the SEC's director of enforcement, told reporters on Tuesday that the agency has a number of active investigations involving structured notes, but declined to elaborate further. (Reporting by Sarah N. Lynch; Editing by Susan Heavey and Andrew Hay)