New York Securities Lawyer Blog
A FINRA Arbitration Panel ordered UBS Financial Services, Inc. and one of its financial advisors, Andrew Burish, to pay $92.2 million in damages, consisting of $24.6 million in compensatory damages and $75.3 million in punitive damages, to nine customers with brokerage accounts at UBS. According to the FINRA Award, the customers asserted claims for breach of fiduciary duty, violation of FINRA suitability rules, failure to supervise/negligent supervision and fraud. The customers allege that UBS and Burish “solicited and recommended an aggressive, high-risk trading strategy designed to produce speculative, short-term profits (not long-term wealth preservation), facilitated this solicited, aggressive trading strategy by furnishing boilerplate paperwork to Claimants (who are not professional investors) and recommended holding highly risky positions at odds with the asset protection and multi-generational wealth transfer advertised as its marketing offering.” More specifically, the customers alleged that UBS and Burish recommended that they sell Tesla, Inc. (TSLA) common stock short, betting that its price would decline. At the time, Tesla shares were trading at around $60 per share. Tesla’s stock price skyrocketed over the next year, reaching over $700 by mid-2020 resulting in losses to these customers. The customers also in the arbitration alleged that UBS and Burish “recommended that they continue to hold the positions in the face of mounting losses.”
According to UBS’s website and FINRA BrokerCheck, Andrew Burish is a financial advisor from Madison, Wisconsin who has been in the financial services industry for over 40 years. He leads Burish Group at UBS, a 50-person team consisting of 17 financial advisors, and manages more than $6.2 billion in client assets. The Panel held Burish individually liable for almost $3.1 million.
This case highlights the significant risks of short-selling stock, especially with highly volatile stocks, such as Tesla. Short selling can be a risky investment strategy even for experienced or sophisticated investors. Financial advisors and financial institutions, like UBS, have an obligation to recommend suitable investments, ensure that investment strategies align with their client’s best interests and disclose all material risks (not just the potential rewards). Financial institutions, including UBS, also have a duty to supervise the recommendations advisors make to their clients.