The SEC filed a settled civil injunctive action yesterday against financial giant UBS. The SEC action alleges violations of Section 15(a) of the Exchange Act and Section 203(a) of the Investment Advisers Act for respectively, acting as an unregistered broker-dealer and investment advisor, the case centers on tax evasion. SEC v. UBS AG, Case No. 1:09-CV-00316 (D.D.C. Filed Feb. 18, 2009). The focus of the inquiry is defined in an information unsealed by the Department of Justice which alleges that UBS conspired to defraud the U.S. by impeding the IRS.

The SEC’s complaint alleges that from 1999 through 2008 UBS acted as an unregistered broker dealer and investment adviser to thousands of U.S. persons and offshore entities with U.S. citizens as beneficial owners. The firm held billions of dollars worth of assets for these clients. This business was conducted primarily through client advisers usually located in Switzerland. These advisers periodically traveled to the U.S. to meet with clients. As a result of these operations, which UBS attempted to conceal, the company had revenues which ran from $120 to $140 million per year.

According to the Department of Justice, the scheme centered on efforts by UBS to impede the IRS. After the bank purchased Paine Webber in 2000, the firm entered into an agreement with the IRS which requires it to report IRS income and other identifying information for its U.S. clients who held U.S. securities in a UBS account. UBS was also required to withhold income taxes from U.S. clients. UBS evaded these obligations, assisting U.S. taxpayers with the opening of new UBS accounts in the names of nominees and sham entities. U.S taxpayer assets were then transferred to the newly created accounts which were not identified as those of U.S. taxpayers. UBS took steps to conceal these activities and the U.S. taxpayers involved filed false tax returns.

UBS settled with the SEC and DOJ. With the SEC, the firm consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 15(a) and Section 203(a) of the Investment Advisers Act. UBS also agreed to pay $200 million in disgorgement, to be paid together with an additional $180 million in disgorgement that will be paid in the criminal case. The firm also agreed to terminate its U.S. cross-border business and to retain a consultant to conduct an examination of its termination of that business.

With DOJ, the firm entered into a deferred prosecution agreement. As part of its agreement, UBS, based on an order by the Swiss Financial Markets Supervisory Authority, agreed to identify its cross-border customers and terminate the business. The company also agreed to pay $780 million in fines, penalties, interest and restitution.

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