UBS Willow Fund investors may have claims to recover their investment losses. In late 2012, the Fund, which had reached approximately $400 million in value, reported that it lost approximately 80% of its value. Investors were notified that the Fund would be liquidated, resulting in massive investment losses. The Willow Fund's portfolio manager has acknowledged that the majority of the losses resulted from investments in risky credit default swaps. UBS Willow Fund investors may be victims of securities fraud because the Willow Fund's offering documents did not properly disclose the Fund's potential investments in credit default swaps.
UBS Financial Services, Inc. sold its affiliated UBS Willow Fund to many investors. The Swiss-based UBS owns UBS Alternative and Quantitative Investments, LLC which, in part, controls UBS Willow Management, LLC, the Willow Fund's investment manager. All directors of the Willow Fund are affiliated with UBS.
Securities brokerage firms are required to fully and fairly disclose all material facts to investors. The failure to do so violates of securities laws, securities industry rules, and general fiduciary duties owed to investors. The violations in this instance may give rise to UBS Financial Services, Inc.'s liability for selling its Willow Fund to investors.
According to the UBS Willow Fund's offering documents, the Fund was supposed to invest primarily in distressed debt of companies that were experiencing financial or business difficulties. But beginning in 2008, the Fund deviated from its stated investment strategy and began to invest heavily in speculative credit default swaps. In addition to the lack of proper disclosure regarding credit default swap investments, Willow Fund investors were not told that the Fund's credit default swap positions would violate statutory and contractual restrictions on the Fund related to borrowing and diversification.
According to reports, by the end of 2008 corporate bonds, which were supposed to be the Fund's primary focus, comprised only 6% of the Fund's positions, whereas the value of credit default swaps had increased to 25% of the portfolio from only 2.6% in 2007. By 2009, credit default swaps positions ballooned to an enormous 43% of the UBS Willow Fund's portfolio.
The Willow Fund's portfolio manager, Sam Kim, has acknowledged that approximately 70% of the Fund's losses resulted from his speculation on credit default swaps on foreign sovereign debt of Spain, Germany, Ireland, Italy, Austria, and Mexico. The UBS Willow Fund was restricted from over-concentrating the Fund's assets in single form of risk. The restriction existed to prevent the massive losses that can result from an over exposure. But the UBS Willow Fund's concentration in credit default swaps violated the restriction and created the very risk that the restriction was designed to avoid. Moreover, exposure to credit default swaps of foreign sovereign debt was not a primary investment strategy disclosed in the Fund's offering memo.
If you lost money in the UBS Willow Fund, contact an attorney at Dimond Kaplan & Rothstein, P.A. for a free consultation to discuss your potential claims. From offices in Miami, Los Angeles, New York, and West Palm Beach our law firm represents victims of stockbroker misconduct and investment fraud throughout the United States.