Lawsuits For Margin Claims For UBS Puerto Rico Bond Fund Losses

One of the most devastating, insidious aspects of the UBS Financial Services Puerto Rico closed end bond fund implosion relates to the losses associated with purchases on margin or credit.  While the losses in the funds are devastating enough, the amplification of the losses due to the loans made by UBS to clients (through the direct recommendation of UBS financial advisors) has resulted in cataclysmic events for UBS clients including the complete wiping out of accounts.

A primer on margin…A brokerage firm can lend a client money against the value of certain stocks, bonds and mutual funds in a client’s portfolio. That borrowed money is called a margin loan, and can be used to purchase additional securities or to meet short-term financial needs.  Customers of brokerage firms who sign a margin agreement can borrow up to 50% of the purchase price of marginable investments.  Said another way, investors can use margin to purchase potentially double the amount of marginable securities than they could using cash.

Why did brokers at UBS recommend purchases of UBS Puerto Rican bond funds on margin? Two reasons…first, margin allowed brokers to purchase additional shares of mutual funds like the Tax Free Puerto Rico Fund II which led to additional commissions directly from buying additional shares.  If a client purchased $500,000 of the Tax Free Puerto Rico Fund II in his or her brokerage account, margin, or credit, could allow the client to buy an additional $250,000 of the fund, thereby increasing the broker’s commissions by 50%.  Secondly, most brokerage firms share some of the margin interest a client pays to the firm with the financial advisor.  This therefore creates a second incentive for the financial advisor to recommend margin to a client.

The margin/credit loans recommend by UBS financial advisors to purchase the closed end Puerto Rico funds that have imploded in many instances were grossly unsuitable.  Recommendations by financial advisors have to be appropriate for clients given their age, actual investment objectives, financial resources and other related factors.  In many instances, UBS financial advisors were recommending margined purchases of the closed end Puerto Rican bond funds without taking into consideration clients’ actual needs and more importantly, the ability to accept the potential losses that could occur. Few of our clients had the ability to sustain not just an initial 50% loss on the funds but then the resulting amplification of those losses due to margin or credit.

Even more importantly, the margin loans were major supervisory red flags for UBS’s branch managers in Puerto Rico, along with the firm’s compliance and supervision.  FINRA and the SEC have hit brokerage firms in the past that didn’t reasonably supervise the purchases and sales of securities on margin. For example, Merrill Lynch was fined $400,000 by FINRA in July of 2012 where part of the fine was for recommending the “unsuitable use of margin to finance customers’ purchasers and sales of securities.”  Merrill’s fine was also in part because it ignored red flags of the “unsuitable use of margin.” SunTrust Investment Securities was fined $900,000 in 2010 because the firm allowed the “unsuitable use of margin” and “there was almost no review of trades placed on margin” and the firm did not utilize margin specific exception reports that would help alert principals to significant margin balances.”  Sound familiar?

In our FINRA arbitration lawsuits against UBS, we are alleging the recommendation of the funds themselves were unsuitable as well as the additional recommendations to take out credit or margin loans to purchase additional shares.  To learn about suing to recover securities fraud losses for unsuitable investment recommendations on margin by UBS financial advisors through FINRA arbitration claims, please call us at 312.332.4200 or visit our law firm website at www.InvestmentFraud.PRO

USB Puerto Rico Bond Funds Fraud Client Information

Many UBS clients who were burned in UBS proprietary closed end mutual funds are wondering how the recent SEC fine against UBS impacts their potential lawsuit or FINRA arbitration claim against the firm. The Securities and Exchange Commission investigation found company officials communicated misleading statements to investors, concealed a liquidity crisis, and masked its control of the secondary market for 23 proprietary closed-end mutual funds. The SEC has instituted contested administrative proceedings against UBS Puerto Rico’s vice chairman and former CEO Miguel A. Ferrer and its head of capital markets Carlos J. Ortiz.

According to the SEC, UBS had control over the secondary market for the non-exchange traded UBS Puerto Rico Bond Funds.  In what is a colossal, undisclosed conflict of interest, UBS manipulated this secondary market to influence share prices in the funds which affected UBS customers’ ability to sell their shares. This undisclosed conflict of interest, where the UBS trading desk effectively controlled the share price of these funds, indicated liquidity and stability in UBS Puerto Rico Bond Funds, when in fact, these highly leveraged funds were illiquid and volatile. UBS then dumped 75 percent of its own holdings in these funds in this secondary market, which pushed down the net-asset-vale by 15% in less than one month. This market manipulated was never disclosed to UBS customers and these blatant conflicts of interest, which had a material impact on the share price of these funds, was never disclosed to UBS customers.

According to Robert Khuzami, the Director of the SEC’s Division of Enforcement, “UBS Puerto Rico denied its closed-end fund customers what they were entitled to under the law – accurate price and liquidity information, and a trading desk that did not advantage UBS’s trades over those of its customers.”

In 2008 UBS sold the Puerto Rico Bond Funds as a stable and liquid product with high premiums to net asset value. At some point during the funds existence sales of the product began to decline and in order to maintain investor confidence UBS began purchasing shares from customers wishing to exit the market. During the spring of 2009 management at UBS determined the Puerto Rico Bond Funds inventory was a financial risk, the firm decided to reduce inventory by 75 percent to reduce risks and to “promote more rational pricing and more clarity to clients”.

UBS Puerto Rico executed a plan dubbed “Objective: Soft Landing” in one document, which included:

  •  Undercutting numerous marketable customer sell orders to “eliminate” those orders and liquidate UBS Puerto Rico’s inventory first, preventing customers from selling their shares.
  •  Not disclosing that UBS Puerto Rico was drastically reducing its inventory purchases.
  •  Soliciting customers to sell recently purchased primary offering shares back to the closed-end fund companies, so UBS Puerto Rico could then sell closed-end funds to those customers from its highest inventory positions.

Mr. Ferrer and Mr. Ortiz made misrepresentations and did not disclose numerous material facts about the Puerto Rico Bond Funds. Internally Ferrer was well aware of UBS funds’ supply and demand imbalance and did discuss it privately. He took the opposite position with UBS financial advisors and directed them to tell customers that the market was experiencing “low volatility” and providing “superior returns.”

According to the SEC, Ferrer also repeatedly made misleading statements about Puerto Rico Bond Funds’ market prices and touted that the funds would always trade at high premiums to net asset value, even while UBS Puerto Rico was substantially reducing its inventory and causing huge investor losses.

We encourage victims who purchased the UBS related funds below to contact an attorney and discuss legal options before contacting the brokerage firm.  To learn more, please contact our law firm at 312.332.4200.

Update for UBS Fraud Victims

Stoltmann Law Offices would like to update investors regarding the UBS Puerto Rico Bond Fund Fraud. UBS employees in Puerto Rico circumvented curbs on margin loans to generate revenue for the Zurich-based company. Registered UBS brokers offered clients loans secured by shares in the Puerto Rico Bond Funds that the company had already owned. In addition, UBS financial advisors took the proceeds of the loans and recommended investors purchase more of the bond funds with the loan proceeds.  In addition some investors opened a line of credit to purchase additional shares of UBS Puerto Rico Bond Funds.

By opening lines of credit and disbursing UBS Bank loans to clients, the company violated loan procedures required by the Federal Deposit Insurance Corp., according to the SEC claim.

We encourage victims who purchased the UBS related funds below to contact an attorney and discuss legal options before contacting the brokerage firm.  To learn more, please contact our law firm at 312.332.4200.

FINRA Arbitration & Investor Lawsuits Over UBS Puerto Rico Bond Funds

Many UBS clients who were burned in UBS proprietary closed end mutual funds are wondering how the recent SEC fine against UBS impacts their potential lawsuit or FINRA arbitration claim against the firm. The Securities and Exchange Commission investigation found company officials communicated misleading statements to investors, concealed a liquidity crisis, and masked its control of the secondary market for 23 proprietary closed-end mutual funds. The SEC has instituted contested administrative proceedings against UBS Puerto Rico’s vice chairman and former CEO Miguel A. Ferrer and its head of capital markets Carlos J. Ortiz. According to the SEC, UBS had control over the secondary market for the non-exchange traded UBS Puerto Rico Bond Funds.  In what is a colossal, undisclosed conflict of interest, UBS manipulated this secondary market to influence share prices in the funds which affected UBS customers’ ability to sell their shares. This undisclosed conflict of interest, where the UBS trading desk effectively controlled the share price of these funds, indicated liquidity and stability in UBS Puerto Rico Bond Funds, when in fact, these highly leveraged funds were illiquid and volatile. UBS then dumped 75 percent of its own holdings in these funds in this secondary market, which pushed down the net-asset-vale by 15% in less than one month. This market manipulated was never disclosed to UBS customers and these blatant conflicts of interest, which had a material impact on the share price of these funds, was never disclosed to UBS customers. According to Robert Khuzami, the Director of the SEC’s Division of Enforcement, “UBS Puerto Rico denied its closed-end fund customers what they were entitled to under the law – accurate price and liquidity information, and a trading desk that did not advantage UBS’s trades over those of its customers.” In 2008 UBS sold the Puerto Rico Bond Funds as a stable and liquid product with high premiums to net asset value. At some point during the funds existence sales of the product began to decline and in order to maintain investor confidence UBS began purchasing shares from customers wishing to exit the market. During the spring of 2009 management at UBS determined the Puerto Rico Bond Funds inventory was a financial risk, the firm decided to reduce inventory by 75 percent to reduce risks and to “promote more rational pricing and more clarity to clients”.

UBS Puerto Rico executed a plan dubbed “Objective: Soft Landing” in one document, which included:

  • Undercutting numerous marketable customer sell orders to “eliminate” those orders and liquidate UBS Puerto Rico’s inventory first, preventing customers from selling their shares.
  • Not disclosing that UBS Puerto Rico was drastically reducing its inventory purchases.
  • Soliciting customers to sell recently purchased primary offering shares back to the closed-end fund companies, so UBS Puerto Rico could then sell closed-end funds to those customers from its highest inventory positions.

Mr. Ferrer and Mr. Ortiz made misrepresentations and did not disclose numerous material facts about the Puerto Rico Bond Funds. Internally Ferrer was well aware of UBS funds’ supply and demand imbalance and did discuss it privately. He took the opposite position with UBS financial advisors and directed them to tell customers that the market was experiencing “low volatility” and providing “superior returns.” According to the SEC, Ferrer also repeatedly made misleading statements about Puerto Rico Bond Funds’ market prices and touted that the funds would always trade at high premiums to net asset value, even while UBS Puerto Rico was substantially reducing its inventory and causing huge investor losses. We encourage victims who purchased the UBS related funds below to contact an attorney and discuss legal options before contacting the brokerage firm.  To learn more, please contact our law firm at 312.332.4200

Update on UBS Fraud In Puerto Rico: Suing UBS Puerto Rico

The press have recently started covering the financial mess in Puerto Rico that hundreds of UBS clients are facing.  The New York Times did a story yesterday and exposed many of the abuses occurring from UBS clients and UBS related proprietary investment products see link below

http://dealbook.nytimes.com/2013/10/02/ubs-brokers-in-puerto-rico-create-headache-for-the-bank/?_r=0 

UBS Puerto Rico is the island’s market leader in closed-end funds, operating more than a dozen. Its Tax-Free Puerto Rico Fund Inc. had a net asset value of $5.242 on Sept. 18, down from $6.73 on Sept. 4 and $9.55 on Jan. 31. Santander Securities and Popular Securities also run closed-end funds with Puerto Rico bond holdings that suffered losses. Many Puerto Ricans invest in the island’s debt through closed-end mutual funds, which in several cases held more than 70 percent of assets in Puerto Rico bonds and employed leverage that magnified this month’s losses.

Many UBS clients who purchased the firms Puerto Rico bonds are trying to figure out what to do about recovering investment losses,  In these sorts of cases, investors often contact the brokerage firm directly.  Usually, the brokerage firm like UBS is very accommodating…at first.  The firm asks the client to simply “put their complaint in writing.”  It is not uncommon for the brokerage firm to claim verbally it will compensate the client but it first needs to see documents related to the investments and to see a complaint letter from the client.

We usually recommend clients don’t do this.Contacting and dealing directly with the brokerage firm is usually a big mistake.Given the sheer number of claims that will likely be filed against UBS, we believe it is unlikely the firm will simply start compensating victims.Regardless of the conduct, it has been our experience that 97% of the time, the brokerage firm rejects the client’s written request for damages.

Such excuses are provided by the brokerage firm like “the client knew the investment was risky or employed leverage.” It is very rare for a brokerage firm to compensate a client without a lawyer.The firms will often drag the “investigation” of the client’s complaint for a long period of time, hoping the client trusts the brokerage firm’s representation that no conduct took place.Sometimes the delays by the brokerage firm are intentional in order to get the statute of limitations period to expire.

Often, clients do irreparable damage to their case when they speak to the brokerage firm’s lawyers or compliance department. 

 We encourage victims who purchased the UBS related funds below to contact an attorney and discuss legal options before contacting the brokerage firm.  To learn more, please contact our law firm at 312.332.4200 or visit www.InvestmentFraud.PRO

 Closed-End funds 

Tax-Free Puerto Rico Fund, Inc.

Tax-Free Puerto Rico Fund II, Inc.

Tax-Free Puerto Rico Target Maturity Fund, Inc.

Puerto Rico AAA Portfolio Target Maturity Fund, Inc.

Puerto Rico AAA Portfolio Bond Fund, Inc.

Puerto Rico AAA Portfolio Bond Fund II, Inc.

Puerto Rico GNMA & U.S. Government Target  Maturity Fund, Inc.

Puerto Rico Mortgage-Backed & U.S. Government  Securities Fund, Inc.

Puerto Rico Fixed Income Fund, Inc.

Puerto Rico Fixed Income Fund II, Inc.

Puerto Rico Fixed Income Fund III, Inc.

Puerto Rico Fixed Income Fund IV, Inc.

Puerto Rico Fixed Income Fund V, InC

Puerto Rico Fixed Income Fund VI,

 

Open-end Funds

 

-Puerto Rico Short Term Investment Fund, Inc.

-Multi-Select Securities Puerto Rico Fund -UBS IRA Select Growth & Income Puerto Rico Fund

Puerto Rico Investors Family of Funds (Co-managed  with Popular Asset Management)

-Puerto Rico Investors Tax-Free Fund, Inc.

-Puerto Rico Investors Tax-Free Fund Inc. II

-Puerto Rico Investors Tax-Free Fund III, Inc.

-Puerto Rico Investors Tax-Free Fund IV, Inc.

-Puerto Rico Investors Tax-Free Fund V, Inc.

-Puerto Rico Investors Tax-Free Fund VI, Inc.

-Puerto Rico Tax-Free Target Maturity Fund, Inc.

-Puerto Rico Tax-Free Target Maturity Fund II, Inc.

-Puerto Rico Investors Bond Fund I

     

UBS Clients In Puerto Rico Have Legal Options

Many wealthy UBS clients were burned by sales practices related to the firm’s recommendation of proprietary mutual funds.  UBS has five branches in Puerto Rico, with 132 brokers who manage money for the island’s elite, including local real estate magnates and wealthy foreigners.  Unfortunately, some of the Puerto Rican mutual funds recommended to hundreds of UBS clients in Puerto Rico have plummeted in value.  As reported in the New York Times, some advisors were even recommending leverage to magnify the returns of the funds.  Since many of these funds have declined in value, investor losses are even greater than they would have been without margin or other tools to increase the leverage.  Clients of UBS who wish to sue the firm must do so through the binding arbitration process administered by FINRA.  Claims against the firm can include suitability claims, fraud, misrepresentations and omissions and other related claims.  To learn about all legal options, including lawsuits, against UBS for losses in Puerto Rico related municipal bond funds, please call us.