UBS is facing a lawsuit over its money laundering programs, the latest from several firms, including LPL, Wells Fargo and Ameriprise, named as defendants in similar litigation.
South Carolina resident Kelly Goldsmith filed suit against UBS in New York federal court this week, alleging that she was a client with retail brokerage accounts managed “on an advisory basis” between 2013 and 2023. She is seeking actionable status in the group.
Like many firms, UBS offers “money laundering” programs in which clients' cash balances (from securities transactions or other deposits) are transferred (or “hidden”) into interest-bearing accounts at various banks.
According to Goldsmith, UBS makes more money when client funds are invested in UBS's money-sweeping programs compared to other options, and UBS sets interest rates with the banks it works with on its money-sweeping programs. But Goldsmith claims those interest rates were “neither reasonable nor consistent with his legal duties”.
According to the lawsuit, UBS offered several money laundering options to different audiences, including retail clients holding trusts, advisory retirement accounts and retail accounts that are not retirement advisory accounts.
However, UBS's annual percentage yields for clients in clearing programs were much lower than those of competitors such as Vanguard and Fidelity. While some firms automatically flush uninvested money into high-interest money market funds, those options were not available to Goldsmith or other money-laundering retail clients, according to the complaint.
“UBS has created a scheme by which it generates substantial profits by using customers' money balances,” the complaint said. “The scheme is designed to maximize profits for UBS while disregarding the best interests of its clients – in fact, UBS generates interest income on its clients' cash balances that is orders of magnitude larger greater than the amounts the client receives.”
A UBS spokesman declined to comment for this story.
In the second-quarter earnings call, CFO Todd Tuckner said the firm expects to “adjust sweep deposit rates” on U.S. advisory accounts by the middle of the fourth quarter, which the firm expected to reduce pretax earnings by about $50 million. dollars per year.
UBS is not the only firm targeted by money laundering class action lawsuits; in recent months LPL, Wells Fargo, Ameriprise and others have been the subject of lawsuits filed in federal court. LPL and Ameriprise were defendants in three lawsuits filed this week alone.
Morgan Stanley and Wells Fargo have also disclosed SEC investigations into their money laundering programs. Last month, Bank of America Merrill Lynch added in its quarterly SEC filings that it could face legal and regulatory risks because of its money laundering programs. according to Barron's. Wells Fargo's most recent quarterly filing indicated it was in “resolution discussions” with the commission about the investigation.
Moody's also recently warned companies and other firms that ongoing investigations into money laundering programs could negatively impact their credit ratings by reducing “distribution-based income” earned from uninvested customer money and increasing legal and regulatory costs.
Wells Fargo, BofA and Morgan Stanley all revealed they would reevaluate their sweepstakes programs in recent quarterly earnings reports and calls.
This week, New York-based law firm Bernstein Litowitz Berger & Grossmann teamed up with former SEC Commissioner Robert J. Jackson (now a professor at NYU Law School) to launch a “money laundering task force” to investigated the money laundering practices of firms including Wells Fargo, Ameriprise, LPL and E*Trade, among others.