Ah yes, the perennial margin dispute finds its way onto yet another court docket. Once again we are confronted with the clash between what a customer thinks and expects, on the one side of the legal caption, and what a brokerage firm discloses and disclaims, on the other side of the “versus.” Cast Of Characters WC Capital Management, LLC (“Willow Creek”) is the general partner and manager of Willow Creek Capital Partners, L.P. (“WCCP”) and Willow Creek Short Biased 30/130 Fund, LP. (“WCSB”). WCCP and WCSB are two “long/short” investment partnerships that generally invested in securities of companies with a sub-$1 billion market capitalization. In early 2007, UBS agreed to act as Willow Creek’s prime broker, and as a result of that capacity, UBS provided to WCCP and WCS: margin loans and prime brokerage services; maintained custody of the two partnerships’ securities and cash collateral; and provided them with loans on margin. Account agreements between UBS and Willow Creek provided that UBS could demand additional collateral from Willow Creek: [i]f at any time any of the UBS Entities has reasonable grounds for insecurity with respect to [Willow Creek’s] performance of any of the Contracts or its Obligations, any of the UBS Entities may demand . . . adequate assurance of due performance by [Willow Creek] within 24 hours . . . . The adequate assurance of performance may include . . . the delivery by [Willow Creek] to [UBS] of additional property as Collateral. The Client Account Agreements also required that Willow Creek “maintain in and furnish to the Accounts such margin . . . as is required by Applicable Law and such greater amounts as the UBS Entities may in their sole discretion require.” Upon opening its accounts, Willow Creek received a UBS Disclosure Statement, which, in part, asserted that: It is [UBS]’s policy to review periodically any account as to which it has credit concerns in light of the value of the assets in the account . . . . Each account with a debit balance is reviewed on an individual basis with consideration given to factors such as market conditions generally at the time, marketability of the securities in the account, frequency of the activity in the account, duration of the account and concentration of particular securities in the account. Different weight may be given these factors by [UBS], and on the basis of its review, [UBS], in its sole discretion, may require additional collateral, above the amount required by the rules of the self regulatory agencies, as security for your obligations to [UBS]. . . …read more
Source: FULL ARTICLE at Forbes Latest