Securities Lawyers Blog
On October 1, 2013, Victor Gómez, Jr. a retired auto executive filed an action against UBS for investment fraud related to Puerto Rican bonds. According to the Caribbean News, this is the first of many legal actions expected to be filed in FINRA against UBS Financial Services, Inc. Mr. Gómez and his family are seeking $30 million in restitution for their investment losses, attorneys’ fees, punitive damages, and other costs. Gómez and his family claim that UBS designed an unsuitable investment strategy, never properly disclosed the risks, and implemented an “illicit and fraudulent scheme perpetrated to generate exorbitant profits… in utter disregard of the best interests of claimants, public interest and applicable laws and regulations.”
According to the Caribbean News, the statement of claim names: “UBS Financial Services Inc.; UBS Bank USA; UBS financial consultants and investment executives José M. Ramirez and Carlos Freire Borges; UBS senior officer Doel García; UBS Puerto Rico CEO Carlos Ubiñas; and other unidentified UBS officials.”
According to sources, the funds at issue were:
BS Trust Company of Puerto Rico; Puerto Rico Fixed Income Fund, Inc. I; Puerto Rico Fixed Income Fund, Inc. II; Puerto Rico Fixed Income Fund, Inc. III; Puerto Rico Fixed Income Fund, Inc. IV; Puerto Rico Fixed Income Fund, Inc. V; Puerto Rico Investors Tax-Free Fund, Inc.; Puerto Rico Investors Tax-Free Fund, Inc. III; Puerto Rico AAA Portfolio Bond Fund, Inc.; Puerto Rico AAA Portfolio Bond Fund, Inc., I; Puerto Rico AAA Portfolio Target Maturity Fund, Inc.; Tax Free Puerto Rico Target Maturity Fund Inc.
UBS officials would not comment on the case filed before FINRA because they had not yet been served with a copy of the statement of claim. Katrina Byrne, a spokeswoman for UBS told the Caribbean News that: “General weakness in municipal markets across the U.S. and Puerto Rico and apprehension about the direction of interest rates have led to steep declines in Puerto Rico municipal bond and closed-end fund prices and a lack of liquidity for these securities.”
Gomez and his family claim that in restitution alone, they are entitled to $22.87 million. The account was owned by Gómez, 69, his wife Socorro Horta, 69, and daughter Madeline Gómez-Horta, 45. Additional accounts were held by Inversiones VM Gómez, LLC, a limited liability company organized by Gómez, his daughter and son Víctor Gómez Horta, but a full tally could not be made because claimants allege they have been denied access to account statements, according to the statement of claim.
According to Gomez, the funds deposited in the accounts “consisted of virtually 100 percent of claimant’s liquidity and a very significant percentage of their total net worth,” and today the accounts’ net assets add up to $500,000. The claimants are left with personal effects and a home in Miami.”
According to the Caribbean News, “Puerto Rico government bonds this year has resulted in big losses for local investors, many of whom hold closed-end mutual funds that invest heavily in Puerto Rico government bonds. The funds leverage their investment portfolios by financing about half of their total assets, which magnifies the risks for investors, many of whom also used additional loans to buy closed fund share assets.”
According to the arbitration documents, UBS Puerto Rico runs and operates 23 closed-end mutual funds that had a total market capitalization of about $4 billion, and the suit states that the funds represent about half the firm’s revenue. Many of these funds have lost 45 percent or more in value. Investor losses are calculated to be in the hundreds of millions.
“UBS has deliberately made misrepresentations to its clients about important material facts regarding the UBS Funds, such as referring to them as “fixed income” securities and/or “bonds” and has deliberately misrepresented the true market price of their shares and the level of risk they entail,” the legal action states.
“Some of the suit’s allegations stem from UBS’s control of its closed-end fund secondary market, which last year prompted the Securities & Exchange Commission (SEC) to charge UBS Puerto Rico and two of its executives with making misleading statements to investors, concealing a liquidity crisis and masking its control of the secondary market for 23 proprietary closed-end mutual funds. UBS Puerto Rico agreed to settle the SEC’s charges by paying $26.6 million into a fund for harmed investors,” according to the Caribbean News.
Gana Weinstein LLP is investigating the unsuitable and fraudulent sale of UBS’ Puerto Rican closed-end funds and Puerto Rico bonds to Puerto Rican investors. Our lawyers have experience representing individual investors in Puerto Rico and may be able to help you recover from these devastating losses.