UBS Puerto Rico operates 23 proprietary non-exchange-traded closed-end funds (UBS Funds). UBS is one of the key players in the Puerto Rico municipal debt market and has packaged and sold approximately $10 billion in municipal debt through the UBS Funds.
It has been alleged that UBS marketed the UBS Funds to customers as income producing municipal bond funds that were designed to preserve investor principal. Over a number of years, UBS allegedly had its advisors over-concentrate thousands of its Puerto Rican clients in the UBS Funds. However, at the same time that UBS recommended the UBS Funds to clients, UBS allegedly liquidated its own UBS Fund assets due to the firm’s internal analysis that found that the Funds contained excessive risks.
Over the summer of 2013, the market for Puerto Rico’s $70 billion municipal debt began to evaporate. As the value of the UBS Funds has plummeted by 50-60% in value in a matter of months investor complaints filed with the Financial Industry Regulatory Authority Inc. (FINRA) have increased.
According to InvestmentNews at least one broker has registered a “staggering amount of damages” stemming from investor losses in the UBS Funds. Jose Gabriel Ramirez Jr., nicknamed in the article as “The Whopper,” had seven investor complaints totaling $50.9 million in October and November according to his BrokerCheck report. The seven complaints alleged damages ranging from $1 million to $26 million. The customers allege that Mr. Ramirez and UBS violated securities rules concerning overconcentration and misrepresentations from 2004 to present in selling the UBS Funds. UBS spokeswoman Karina Byrne commented that Mr. Ramirez is on administrative leave and that the firm intends to defend itself in these arbitration claims.
Since the bond funds began to lose their value, clients have come forward claiming that they were encouraged by UBS brokers to take out non-purpose loans to buy closed-end funds. Due to the decreasing value of the UBS Funds, many of those customers are now facing margin calls on their loans. In addition, because the UBS Funds can only be sold to other UBS customers who reside in Puerto Rico, the market for selling the UBS Funds no longer exists to satisfy margin calls or to provide liquidity for investors.
The attorneys at Gana Weinstein LLP are experienced in handling claims involving the UBS bond funds. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.