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UBS To Be Sued By South Korean Investor

Nov 27, 2002 |

UBS is being sued by a South Korean investor amid allegations that the Swiss bank leaked market sensitive information to favoured clients.

The lawsuit follows a ruling by South Korea's financial regulator that UBS Warburg, its investment banking unit, violated disclosure rules last May by alerting clients to an impending downgrade of shares in Samsung Electronics.

A retail investor has filed a lawsuit against UBS, alleging that he suffered losses because of the bank's mishandling of the downgrade from a "strong buy" recommendation to "hold".

Those UBS clients that were allegedly informed of the impending downgrade were able to sell shares in Samsung ahead of other investors, protecting them from the 8 per cent plunge in the stock on the day that the influential report was made public.

The bank has denied the plaintiff's allegation, pointing out that its equity research and investment advice is intended for institutional clients rather than individual retail investors.

However, if successful, the lawsuit could spark a wave of copycat cases against UBS and other foreign brokerages, including Merrill Lynch, which was also punished for breaking disclosure rules.

UBS and Merrill were handed official warnings by Seoul's Financial Supervisory Commission in August, and several of their bankers were fined.

Foreign and domestic brokerages have been under pressure in South Korea this year as the commission has tightened regulation of the sector.

The watchdog has ordered the strengthening of "firewalls" to prevent conflicts of interest between the research, sales and investment banking arms of diversified financial institutions.

Seoul introduced tough new disclosure rules earlier this month to ensure that market-sensitive information is distributed as widely as possible at the same time.

South Korea's clampdown has coincided with this year's global scrutiny of the investment banking industry following a string of scandals involving US securities analysts.

"Seoul has been even more draconian than the US in cracking-down on analysts and investment banks," said a western banker in South Korea.

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