Class-action suit accuses
UBS of Charging Storage Fees On “Phantom” Silver.
According to the lawsuit, customers were charged storage
fees every month, even though the bank was not actually
storing anything. It never purchased any physical
silver. Instead, the bank allegedly used customer cash
for its own purposes. In effect, customers ended up
buying a non-interest bearing silver bond. such bonds,
based on a promise of repayment in precious metals, were
typically issued in the late 19th and early 20th
century. Back then, they bore a nice interest rate,
payable in gold or silver. Today’s version of the
precious metal bond is unallocated storage, which takes
money from investors but pays them nothing at all.
A very similar lawsuit was filed, in 2007, against
morgan stanley (ms). In that case, small investors were
also claiming they had been defrauded into participating
in unallocated metals storage. The bank defended itself
by alleging, among other defenses, that it was simply
following standard industry practices. In other words,
the amount of information given to customers, the
unallocated nature of the scheme, as well as the
charging of “storage fees” for imaginary metal were
“standard industry practices”. In light of what we now
know, maybe they were telling the truth. Morgan stanley
did eventually settle for a multi-million dollar payout,
but it continued to deny liability.
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