FINRA Sanctions UBS Financial Services involving Municipal short positions
According to the public records on FINRA’s website, on October 2, 2019, the regulator reportedly sanctioned UBS Financial Services with a censure and a $2,000,000 fine for “repeated failures” with representing municipal short positions in a timely way and for allegedly inaccurately reporting the tax status of thousands of interest payments to customers.
The regulator also reportedly required UBS to pay restitution to customers who may have incurred any increased state tax liabilities, to pay the IRS to relieve customers of any additional federal income tax owed, and to certify within 90 days that the firm has taken appropriate corrective measures.
According to the AWC, FINRA purportedly sanctioned UBS for similar alleged failures in this area in August 2015.
According to FINRA, when a brokerage firm is short municipal securities purchased by customers, the firm is the source of the interest payments. That interest, commonly known as “substitute interest,” is subject to applicable taxes.
From August 2015 through the end of 2017, UBS reportedly continued to fail to timely identify and properly address certain short positions in municipal securities, according to the AWC.
As a result, UBS purportedly inaccurately represented on customer account statements and Forms 1099 that interest payments for 2,853 positions in municipal securities were tax-exempt when, in fact, they were taxable, and inaccurately represented on approximately 950 additional customer account statements and Forms 1099 that interest payments were taxable, when they were tax-exempt.
For FINRA’s full findings see FINRA Case # 2016050874301.
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