According to a recent InvestmentNews article entitled “FINRA panel directs UBS to pay $750,000 for Puerto Rico Investment Damages,” the Financial Industry Regulatory Authority (FINRA) has ordered UBS to pay $750,000 as awards for damages tied to the island’s debt crisis continue to rise. Investors who claimed damages tied to their Puerto Rican debt investments, may be able to see $750,000 paid out by the bank’s AG wealth management business. The investors are Jose A. Rivera Riera, Desarrollos Jarra SE and Jenny Robles Adomo, who claimed fraud, recklessness and negligence concerning their investments in Puerto Rico bonds and closed-end funds. The investors are also seeking to recover commissions they paid the brokerage firm on top of damages. FINRA arbitration awards concerning investors who claim alleged negligence have climbed this year. For example, a FINRA arbitration panel ordered UBS to pay $470,000 to three investors who claimed damages because their accounts were over-concentrated in Puerto Rico bonds.
On Monday, the U.S. House of Representatives passed a bill that would take away exemptions from federal securities law for those offered in Puerto Rico and other U.S. territories that the Securities and Exchange Commission (SEC) administers in the U.S. Currently, Puerto Rico and the other territories have the ability to issue their own rules, Nydia Velazquez’s (D-NY) bill would be able to extend protections to citizens in the territories. The U.S. Territories Investor Protection Act of 2016, would apply federal rules to securities offered and issued only in the territories. Some of the reports have states that some issuers of securities in the country have basically become their own underwriters, packaging and selling securities without disclosing that conflict of interest.
The bill was passed on a bipartisan vote on Monday afternoon by voice, and ends one of the long-standing exemptions in the Investment Company Act for territorial securities. It also provides exemptions for closed-end investment companies, employees’ security companies and others. The bill is expected to help investors in securities get a better idea of the risks associated with them. The bill also builds a three year grace period for companies to comply with the new rules, as well as giving the SEC the power to extend that deadline. It also establishes a seven-member board with power over the island’s financial affairs, including the power to force sales of government assets and to revise budgets to line up with the board’s fiscal plan. It would also act as a gatekeeper for debtors seeking to restructure their debts in court. Only the board could decide who is actually a debtor and to file those cases in federal court. The Puerto Rican debt crisis recently showed these disclosure problems, when numerous citizens bought risky bond securities without being told how risky they actually were. This lead to the territory receiving some help, but the new bill does not provide Puerto Rico the ability to use Chapter 9 of the U.S. Bankruptcy Code, something for which the island officials had been hoping.
The Senate is preparing to take up a bill that would impose a control board to oversee the restructuring of Puerto Rico’s $70 billion debt. Seven Democratic senators are urging the Securities and Exchange Commission (SEC) to investigate potential misconduct involving the Puerto Rican bonds. A letter released Tuesday by the office of Robert Menendez, New Jersey’s senior senator, stated: “We write to ask you that you investigate possible market manipulation, conflicts of interest, trading practices, and fraud in the underwriting sale, distribution and trading of municipal securities of and relating to Puerto Rico, as well as any other fraudulent, illegal or wrongful conduct.” Also, according to the SEC, Puerto Ricans deserve to know whether illegal activity contributed to the current debt burden. The bill is expected to be taken up by the end of the month. The letter followed a report compiled by a Puerto Rico commission earlier this month that says the commonwealth may have violated its constitution when it sold $3.5 billion of general-obligation bonds in March 2014. It is also being called on for federal regulators to investigate whether OppenheiemerFunds Inc. and Franklin Templeton Resources adequately valued their commonwealth bond holdings as the financial crisis worsened. Puerto Rico’s general obligation debt must be repaid before other expenses. The island also cannot make that payment in full and also pay for essential services for 3.5 million residents.
A UBS AG unit was ordered to pay more than $4.7 million to a customer’s former spouse who alleged that the bank improperly released accounts worth $12 million to her ex-husband even though the court ordered freezing those assets. David Efron was a Puerto Rico lawyer who withdrew all but $1.2 million over a nine-month period. Most of those funds were negotiable instruments that UBS was holding as collateral. When UBS released the accounts for Efron, he was in the middle of a divorce battle with his ex-wife. Around $800,000 of the remaining $1.2 million was used to repay a loan UBS made to Efron.
Puerto Rican bonds continued to plummet after Governor Alejandro Garcia Padilla signed a bill that would allow the commonwealth to suspend debt payments while awaiting help from Washington in dealing with the country’s ongoing financial crisis. The bill will allow moratorium on payments to keep government cash flowing for essential services. So far, Puerto Rico owes investors about $70 billion and has been struggling with economic stagnation and population decline for a decade. The island began defaulting on debt in August. Republicans in the US House of Representatives last week proposed a bill that would allow debt restructuring under supervision of a control board, and will decided whether the island has the right to craft its own process for municipal bankruptcy. The commonwealth’s Government Development Bank has a debt payment of about $400 million due May 1st.
According to the Financial Industry Regulatory Authority (FINRA) last week, UBS Group AG’s wealth management business for the Americas must pay more than $470,000 to three investors who claimed damages because their account were overconcentrated in Puerto Rico bonds that plunged in value. Obdulio Melendez Ramos, Ramon Velez Garcia and Carlos L. Merced filed claims in October 2014, alleging fraud and negligent supervision and were seeking $570,243 in damages. UBS awarded them just slightly less than what they asked for. The bank recently released its fourth-quarter earnings results and those showed that since August 2013, declines in Puerto Rico’s municipal bonds and related funds managed by the firm have led to damages for claims totaling $1.5 billion. $284 million of those claims so far have been resolved through settlements or arbitration.
FINRA Removes Client Complaint Stating Morgan Stanley Broker Failed to Inform Client of Puerto Rican Bond Risks
A Financial Industry Regulatory Authority (FINRA) arbitration panel this week approved the removal of a complaint against an ex-Morgan Stanley broker regarding Puerto Rican bond investments. The three person panel stated that the advisor, Dennis Coral, kept the client adequately informed of the risks of the client’s investments in the bonds during their seven year relationship. The FINRA panel decided that Coral promptly mailed purchase and sales transaction confirmations as well as monthly account statements for all of the client’s three accounts to her and met with her once a month at her house to discuss the accounts. Coral also stated that he discussed all of her Puerto Rico bond purchases and sales with her as part of the monthly meetings, including the downgrades the bonds suffered in January 2014, which is when the sales occurred. In June of that year, the client filed a complaint with Morgan Stanley stating that Coral sold her Puerto Rico bonds without her authorization in January, causing her to suffer losses. The FINRA panel disagreed with her.
UBS won an arbitration case in which the estate of a deceased client sought $3.5 million in damages. The case was related to the firm’s sale of Puerto Rico closed-end funds and bonds. A Financial Industry Regulatory Authority (FINRA) arbitration panel ruled on a claim that Gabriel Cadenas’ estate was reduced to $1 million plus attorney’s fees. His estate also dismissed its own claims against three UBS employees. UBS rejected the allegations and asked the panel to dismiss all claims, according to the arbitration award. This was one of the few setbacks by UBS clients who have sued the firm for sales practices related to the closed-end bond funds sold by the firm. Last month, an arbitration panel ordered the brokerage firm to pay a former client $1.5 million. The client had originally sought $2 million in damages.
On Thursday, securities arbitrators ordered UBS AG to pay an investor $1.45 million for losses incurred by Puerto Rico closed-end bond funds, according to a ruling. A Financial Industry Regulatory Authority (FINRA) arbitration panel found two UBS units liable in the case, which alleged securities fraud, misrepresentation and other misdeeds. Many of the funds lost half to two-thirds of their value between March 2011 and October 2013. They have not recovered since as the island remains under massive debts. UBS has had hundreds of claims filed against them, with a collective $1.5 billion at stake. Of those, the firm has resolved $284 million in claims through settlements or the full arbitration process. UBS in September of last year, agreed to pay almost $34 million to settle charges from the U.S. Securities and Exchange Commission (SEC) and FINRA. Both regulatory bodies claimed that UBS failed to supervise sales of the funds. Please call us today if you have claims against UBS for Puerto Rican bond fund sales. We may be able to sue the firm in the FINRA arbitration process.
In November, a Financial Industry Regulatory Authority (FINRA) arbitration panel required Morgan Stanley to pay $95,632 to a New Jersey investor for unsuitable recommendations to buy and hold Puerto Rico bonds. The award is believed to be the first of its kind involving an investor in the States. The award was Schiffman v. Morgan Stanley, FINRA Case No. 14-01573. Investors so far have suffered losses between 20 and 40 percent of their investments, depending on the Puerto Rican bonds they own. Since Puerto Rico plummeted into debt, beginning in 2012, the island’s bonds have also plummeted, leaving investors with massive losses. If you or someone you know has been a victim of Puerto Rican bond fund fraud, please call our Chicago-based securities law offices for a free consultation with an attorney. We take cases on a contingency fee basis to help investors recover their losses. The call to us is free.