By Matthias Rieker
An activist investor has won a $2 million arbitration award from
UBS AG, which he said derailed his proxy fight against a
health-care information systems company by calling a margin loan
and selling almost 2.3 million shares he had in the business.
In his claim, Ahmed Hussein said he lost more than $20 million
when UBS called the loan as Quality System Inc.'s stock was falling
in 2012. Mr. Hussein, who was a Quality System director, was trying
to force a change in the company's strategy.
The UBS rapid stock sale to satisfy the margin requirements
"torpedoed [Mr.] Hussein's standing in the proxy contest,"
according to the claim filed with the Financial Industry Regulatory
Authority in 2014.
The Finra arbitration panel that heard the case ruled that UBS
has to pay Mr. Hussein compensation, but no other damages or legal
fees. As is customary, the panel didn't give a reason for its
decision, which left both parties dissatisfied.
"We were disappointed that the arbitrators declined to address
Mr. Hussein's claims," said Steve Morrissey of Los Angeles law firm
Susman Godfrey LLP. He said they planned to pursue a new case in
Utah court against UBS's banking division. The arbitration claim
was against several UBS units.
UBS, which had wanted Mr. Hussein's claims dismissed, "is
disappointed with the decision, with which we respectfully
disagree," a spokesman said. "Mr. Hussein is an extremely
sophisticated investor who made a knowing choice to borrow large
sums of money against a concentrated position in a single stock,
and all of UBS's actions were in accordance with our rights under
written contracts that Mr. Hussein signed."
Mr. Hussein, whose net worth UBS estimated at about $400 million
in 2012, had opened a margin account with a UBS financial adviser
in 2009, according to UBS. He was allowed to borrow up to 50% of
the value of the shares he placed as collateral, according to
filings in the case. Mr. Hussein also opened a separate account
with $8.7 million in additional assets managed by his UBS financial
adviser, his claim said.
Quality System's stock rose significantly between 2009 and 2012,
and Mr. Hussein ended up borrowing about $45.5 million at UBS
brokerage and banking units against about $100 million mainly in
the value of Quality System stock. His UBS adviser recommended Mr.
Hussein to consider diversifying his holdings, and hedging against
his concentrated position in the one company, according to UBS. Mr.
Hussein "largely rejected this advice," UBS said.
In early 2012, when Quality System's stock began to fall, Mr.
Hussein held an almost 16% stake in the company and challenged the
board in a proxy fight. He asked shareholders to elect a new slate
of directors and pushed for changes to the company's business
strategy. A reported earnings decline caused the stock to fall
further in July 2012, and UBS sold some of Mr. Hussein's shares in
several transactions to cover its margin requirements. Mr. Hussein
said those transactions weren't authorized; UBS says it had the
right to sell the stock under its margin loan agreement.
Mr. Hussein claimed that UBS's sale caused Quality System's
stock to fall even further, exacerbating his losses, and caused
harm to his "standing in the investment community." His ownership
of Quality System dropped to just over 9%, and he resigned from the
board in 2013, according to public documents.
Write to Matthias Rieker at matthias.rieker@wsj.com
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