Why did UBS Financial Advisors Recommend Puerto Rico Muni Bonds to Elderly and Retired Investors?

In the wake of the Puerto Rico Bond Crisis, our securities fraud lawyers cannot help but wonder why advisors of UBS Financial Services of Puerto Rico, Inc. (UBS) recommended that retiree and conservative investors get involved with municipal bonds that had close to junk ratings. Now, many of these investors are coming forward to pursue securities claims against the firm.

According to Forbes, merely assessing Puerto Rico muni bonds via Fitch, Moody’s and Standard & Poor’s should have caused any good financial adviser to make sure that the junk bonds were only recommended to sophisticated clients that could afford the risks. Also, signs that Puerto Rico’s debt was only growing worse have been around for years.

Still, during the last decade, UBS managed to package $10 billion of closed-end bond funds full of risky Puerto Rican bonds that were highly leveraged and sold them to many retired and conservative investors. Now, customers want to know, how could UBS have overlooked the US territory’s unfunded liabilities, serious budget deficits, strict cash flow limitations, and slowed economic growth?

The New American reports that Puerto Rico’s debt is close to four times greater than the $18 billion debt experienced by Detroit, which forced the Michigan city to file for bankruptcy protection. Even though Puerto Rico’s muni bonds are exempt from local, federal or state taxes, their interest rates have soared since Detroit’s bankruptcy filing to 8-10% and some say this will go up even more to bring in new investors. The New American says that there are signs that this bond debacle could lead to trouble for the US:

– Moody’s downgrading of Puerto Rico’s debt to right above junk and gave it a negative outlook.

– UBS’s Puerto Rico branch settling with the SEC over allegations that it artificially supported bond prices and tried to cover up the fact that the territory’s economy was failing.

– Puerto Rico’s treasury officers borrowing in the private market sector because they were having trouble accessing the bond market.

– Puerto Rico having a pension plan that is just 7% funded.

– Puerto Rico’s government having a negative cash flow for over a decade.

Unfortunately, triple tax emptions and other incentives let the Puerto Rican government continue to borrow from investors at rates that were artificially attractive while the latter wrongly assumed that their investments were secure. Some of the funds holding these high risk bonds have lost much of their value. For example, the UBS Puerto Rico Tax-Free Target Maturity Fund II and the UBS Puerto Rico Tax-Free Target Maturity Fund have declined in value by 83.5% and 88.9%, respectively.

Puerto Rico Bond Fund Attorneys



Our Puerto Rico bond lawyers at Shepherd Smith Edwards and Kantas are meeting with customers in the US and in Puerto Rico who invested in municipal securities and bonds through UBS, Banco Santander (SAN.MC), Banco Popular, and other brokerage firms. We can help you explore your legal options.

Puerto Rico’s Bond Prices Are Falling Sharply, Foreshadowing U.S. Problems, The New American, October 29, 2013

How Did UBS Recommend Puerto Rico Junk For Mom And Pop Clients?, Forbes, November 5, 2013

More Blog Posts:
US Treasury Doesn’t Intend to Provide Aid Over Puerto Rico Bond Fund Debacle, Says Spokesperson, Stockbroker Fraud Blog, October 10, 2013
Two Investment Advisers Sue Twitter for Secondary Market Fraud, Stockbroker Fraud Blog, November 5, 2013

Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle, Institutional Investor Securities Blog, October 28, 2013