AdvisorHub (June 1, 2021) - A Financial Industry Regulatory Authority arbitrator granted a 20-year UBS Wealth Management USA broker in South Carolina expungement of a 2019 complaint related to the wirehouse’s Yield Enhancement Strategy (YES), an options play that has spawned numerous claims in the past two years.
Brian A. Blackburn, a senior vice president at UBS with The Alpha Group in Greenville, S.C., filed his request to expunge the claim, which was settled in 2019 for $165,000 of $348,000 requested, in March. He was also successful in clearing a separate client dispute dating back to 2008 over auction rate securities.
Both cases point to the long-standing question of who’s to blame in product failure-type cases.
In the YES-related case, the arbitrator, John P. Cullem, found that there was “no misrepresentation” by Blackburn in his sales pitch of the strategy, which was managed by a New York-based UBS team.
The YES program was “in all respects” suitable for the two high net worth clients–a husband and wife who each individually met the $5 million threshold–and any losses “were a direct result of unexpected and extraordinary market conditions,” according to the award document finalized Friday.
Cullem noted that ‘YES’ “had a long track-record from 2003 of success.” It generated 6-8% in income per year and returned approximately 60% in long-term capital gains and 40% in short-term gains, the arbitrator wrote.
“The representations made by Claimant, the YES managers and UBS generally are so complete that I cannot find any basis for the alleged misrepresentations or unsuitability of the investment in the YES program,” he wrote.
He similarly noted in the ARS case that Blackburn “committed no sales-practice violation, and the specific claims of the customers in both instances were related to the product and not the conduct of [Blackburn] in the sales thereof.”
The customers in the YES case did not participate in the hearings, and the ARS customer was deceased, according to the award.
Blackburn, who did not respond to a request for comment sent through social media, had denied the YES-related allegations in his broker comment on the ‘disclosure’ and noted that he was not named as a party in the matter.
“I did not misrepresent the strategy and believed the strategy to be suitable based on my clients’ representations about their investment objectives,” he wrote. “Further, once the client entered into the strategy, the trading in the account was controlled by the strategy’s managers.”
Blackburn has been registered with UBS since 2001, according to his BrokerCheck report. He ranked 50th on Forbes’ 2021 list of “Best-in-State” wealth advisors, which said his team manages $687 million in client assets and has a $2 million account minimum.
His attorney, David I. Hantman with Bressler, Amery & Ross in New York City, did not respond to a request for comment.
A spokesman for UBS, which did not oppose Blackburn’s requests for expungement, according to the award document, declined to comment.
UBS itself has faced mixed results in YES arbitrations, which arose due to losses suffered amid volatile equity markets in late 2018 and 2019 and then again amid the pandemic volatility in 2020. The strategy YES was developed by Matthew Buchsbaum, a broker who moved with his team to UBS in 2015 from Credit Suisse, where they developed the program.
Cullem in this case found that the husband, referred to as Customer A, was “a highly successful business executive” with Fluor Corp., a publicly traded engineering and construction firm.
“[Blackburn] testified that as to all of his customers, Customer A was, if not the most sophisticated investor, within the top three he ever had as a client,” the arbitrator wrote. “The focus of Claimant’s practice was with high net worth clients.”
Cullem wrote that the customers had also agreed to have a “high-risk, aggressive, long term and illiquid investment” using the YES program and that this was clearly stated in numerous documents signed by, provided to, and discussed with them.
“I find that both occurrences should be expunged as the continued reporting of them on the BrokerCheck Report and CRD serves no meaningful investor protection or regulatory value,” he wrote in ordering the expungement.
Blackburn will have to obtain confirmation from a court before the CRD will execute the expungements, according to Finra. The regulator has been mulling changes to its expungement program as it faces ongoing criticism of the high rate of cases that plaintiffs’ lawyers say brokers are able to win.
Finra last week said it withdrew its proposal to reform the procedures to expunge brokers’ public records, which was before the Securities and Exchange Commission. The Public Investors Advocate Bar Association had argued Finra’s proposed reforms were inadequate and called for more rigorous procedures.