Big Short: UBS, Top Broker Face $23 Million Claim over Tesla Trades

UBS Tesla

A UBS financial advisor in Madison, Wisconsin who oversees a 35-person team “repeatedly promoted the idea of short selling” shares of the electric car company Tesla, Inc., triggering more than $23 million in losses for four couples—all members of an extended family—and another investor, according to an arbitration claim filed with the Financial Industry Regulatory Authority.

The complaint cites Tesla short-selling recommendations–betting on the stock price’s decline–allegedly made in 2019 and 2020 by Andrew Burish, a 38-year industry veteran who started at UBS in 1984 and leads The Burish Group, one of the firm’s largest and most profitable teams in the Midwest. The team employs 14 advisors and manages more than $4 billion in client assets, according to its website.

The complaint, which was filed in February, accuses UBS and Burish of breach of fiduciary duty and violating Finra’s suitability rule and also specifically accuses UBS of failing to supervise the broker. The claimants seek actual damages of $23 million as well as unspecified punitive damages and costs.

“His recommendation focused on his conviction that lots of money would be made because Tesla common stock was overvalued and certain to lose its value,” the plaintiffs argued. “No balanced view of the risk of loss was provided by Burish.”

In early 2019, Tesla stock was trading at roughly $60 per share and since then its price has soared to more than $720 per share by press time.

Burish, whom Barron’s ranked this year among the top 100 advisors nationwide andForbes ranked as the top broker in his state, declined to comment. He founded the group in 1991, according to the claim.

A UBS spokesman said in a statement that the plaintiffs are “sophisticated investors” who had a tolerance for the risks associated with the strategy.

“The claimants…had previously engaged in short-selling and were aware of the risks and potential rewards of this strategy,” the UBS spokesman added. “The claimants confirmed to UBS that they were willing to accept those risks.”

The lead name on the claim is Dennis Hansen, who, along with his wife, lost $16.5 million, the most of the nine claimants. Hansen is the CEO and owner of two automobile-industry-related companies—Precision of New Hampton, a torque-convertor maker, and HotFlush, Inc., a manufacturer of automatic flushing systems for oil coolers and heat exchanges, according to his LinkedIn page.

Hansen, who lives in New Hampton, Iowa, did not return a call for this story. Paul Gamez, a Cedar Rapids, Iowa-based lawyer with Simmons Perrine Moyer Bergman, who is representing Hansen and the other claimants, including his three children and their spouses, declined to comment.

Hansen had previously tried to make his case in a written complaint to UBS, but the firm denied the allegations, according to Burish’s BrokerCheck record and Central Registration Depository ‘Snapshot’ report maintained by state securities regulators.

Hansen and his wife ultimately closed out of the Tesla positions by covering their shorts in July 2020 “against Burish’s advice,” according to the complaint.

Burish’s BrokerCheck report shows one other client complaint on his record from 2010 in a case that settled for $1 million of the $1.2 million requested and involved allegedly unsuitable recommendations of structured products in 2008.

The broker denied wrongdoing and did not contribute to the settlement, according to a comment appended to the disclosure. The customers in that case were “highly successful, sophisticated business people who were involved in numerous high dollar projects,” Burish wrote in the comment.

“These investments were suitable for the client and the client was so pleased with the return, they requested to buy more,” he wrote.

The Burish team, however, has come under scrutiny for other concerns that were also related to options trading.

More recently, in 2018, UBS terminated a regional compliance officer, a producing branch manager and a junior associate on Burish’s team following allegations about the junior associate’s failure to close out a losing trade and resulting losses, as ordered by senior compliance personnel.

The error prompted UBS to issue new trading restrictions that year on brokers looking to trade naked options in their own or family accounts.

The case also resulted in an eye-popping $11 million arbitration award against UBS for Mark Munizzi, the discharged regional compliance officer, who argued that UBS defamed him in its U5 notice. In December 2020, an Illinois state court denied UBS’s motion to vacate the Finra panel’s award, although UBS has filed an appeal that is pending in the First Judicial District for the Appellate Court of Illinois.

“It is clear that Munizzi was not terminated for the reasons stated in the Form U5 but rather to protect a senior member of a large revenue producing retail team …,” Munizzi’s lawyers wrote in the defamation complaint filed with Finra in 2019.

News source