Securities Lawyers Blog
According to UBS’ second quarter earnings report, the bank is now looking at over $600 million in claims brought by Puerto Rico investors, who have suffered significant losses related to their investments in closed-end bond funds. The Financial Industry Regulatory Authority (FINRA) has been inundated with a plethora of claims in connection with the closed-end UBS Puerto Rico Bond Funds. Investors are looking to be made whole after they purportedly received misleading information regarding these investments. While the majority of the claims were filed against UBS Financial Services of Puerto, other firms, including Merrill Lynch, Banco Popular, Santander Securities, and Oriental Financial Services have also been named as Respondents in many of the claims.
UBS recognizes the perilous situation that it now faces with respect to these claims, explaining, “declines in the market prices of Puerto Rico municipal bonds and of UBS Puerto Rico sole-managed and co-managed closed-end funds since August 2013 have led to multiple regulatory inquiries, as well as customer complaints and arbitrations with aggregate claimed damages exceeding [$]600 million filed by clients in Puerto Rico who own those securities.”
Some of the claims that UBS face, including clients represented by our firm, include allegations of unsuitability, over-concentration, fraud, and breach of contract among others. FINRA and the Municipal Securities Rulemaking Board require broker dealers to have a reasonable basis to support the suitability of their recommendations to customers. Legal representatives for many claimants have said that the UBS employees prioritized commissions when they sold the closed-end bond funds to Puerto Rican investors, who were not economically equipped to make those investments.
Only Puerto Rico residents are eligible to purchase the closed-end funds, which are marketed as producing income that is exempt from Puerto Rico taxes. UBS has claimed that it made its investors aware of the risks inherent to these investments and in November 2013 made offers to buy back some of the bond fund shares. As of the end of the second quarter of 2014, UBS’ net lending exposure to Puerto Rico municipal bonds and closed-end funds was $660 million, down from $814 million, after many first quarter share buy-backs.
UBS has been preparing to satisfy the anticipated liabilities resulting from its problems in the volatile Commonwealth of Puerto Rico. UBS acknowledges, however, that quantifying the outcomes and respective damages is very difficult. Claims will begin to be heard in the first quarter of 2015 and will likely continue on an almost weekly basis through 2016.
The attorneys at Gana Weinstein LLP are experienced in handling claims involving the Puerto Rican UBS Bond Funds. Our consultations are free and we welcome all inquiries.