Investment Company Will Pay $50 Million to Settle SEC Charges

August 28, 2013 — To prevent investors from being duped by firms engaged in unethical conduct in the financial sector, the U.S. Congress incorporated a whistleblower program into the Dodd-Frank Act of 2010. Informants who notify the Securities and Exchange Commission (SEC) about financial crimes and misconduct may receive compensation for their willingness to collaborate. Tipsters are eligible to receive up to thirty percent of the total amount collected by the government, so long as the recovery tops $1 million.

Investment Company Settles Charges That It Swindled $23.6 Million From Investors

An international financial security company headquartered in Germany with operations in New York has agreed to pay the SEC $50 million to settle charges involving securities law violations. The SEC had charged UBS Securities (UBS) with collecting payments to which it was not entitled in connection with a collateralized debt obligation secured by credit default swaps.

In 2007, UBS created a collateralized debt obligation (CDO) that it planned to sell. The CDO required credit default swaps to serve as collateral. The credit default swaps were sub-prime residential mortgages. As part of the sale of the CDO, alleged the SEC, UBS told investors that when credit default swap payments were made, UBS would transfer the payments, less its fee, to the CDO.

The SEC alleged that UBS structured the purchase of credit default swap assets to choose those that offered an upfront payment. Under the terms of its agreement with investors in the CDO, UBS should have transferred the credit default swap upfront payments, totaling $23.6 million, to the CDO, retaining only a $10.8 million fee. Instead, UBS debated whether to disclose to the CDO that it had received the upfront payments, but ultimately chose to keep the $23.6 million in payments and say nothing.

Whistleblowers Report Unethical Conduct in the Securities Industry

Company insiders with information about an employer’s misconduct or criminal activity in the securities industry should understand how the Dodd-Frank whistleblower program works before they collaborate with the SEC. Tipsters wishing to remain anonymous must retain an attorney to speak out for them — they cannot notify the government directly. The SEC fraud lawyers at Waters & Kraus have the experience needed to safeguard whistleblowers’ interests in securities fraud cases. Contact us by email or phone our whistleblower attorneys at 800.226.9880 to discuss how we can help you.

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