UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales

Authorities in the United States are reportedly investigating UBS AG (UBSN) for its actions in Puerto Rico. The criminal fraud investigation comes in the wake of allegations that an ex-UBS broker in Puerto Rico told clients to improperly borrow money to purchase local mutual funds that later sank.

The investigation is centered around non-purpose loans that came from UBS Bank USA of Utah. The former UBS broker, Jose Ramirez, organized the loans for clients. The bank has since let him go.

Under internal guidelines, such loans are not allowed to be used for the purchase of securities since those very securities will be the collateral for the loans. Now, however, investors are saying that Ramirez was utilizing these loans to purchase more shares in the bond funds for them. Some are even saying that he gave them paperwork that made it appear as if customers were borrowing from the UBS bank in Puerto Rico and not the one in Utah. More than 100 investors may have been affected.

The investors contend that Ramirez told these clients to place their loan proceeds in accounts at an unrelated local bank. They wrote him checks for the amounts of the loan and he allegedly used the money to purchase more bond fund shares for these investors.

Now investigators are trying to figure out whether UBS executives on the mainland and in Puerto Rico were aware that proceeds from loans made by the firm’s unit in Utah were used in a manner that violated the bank’s own lending rules. If these executives were aware of what was going on but failed to act to prevent the fraud, they could be found criminally accountable.

Another problem with the loans is that the US territory’s Office of the Financial Institutions Commissioner never granted UBS bank a license to lend them in Puerto Rico. After the lending of the loans was discovered, the bank consented to sell the loans to its brokerage firm in Puerto Rico. But when clients were asked to sign statements promising not to use the proceeds from the loan to buy securities, many had to refuse because some of their securities were purchased with the loan proceeds. They then had to pay back the loans by selling their shares of the bond funds right away at a loss.

Puerto Rico Muni Bonds
Whether borrowed money was used to purchase UBS’s Puerto Rico municipal bond funds or not, investors in Puerto Rico muni bonds sustained huge losses when they failed last year. Many of the muni bonds included Puerto Rico government bonds that UBS underwrote. Those bonds have now all been downgraded to “junk” status, which some being close to default or a significant restricting.

Our investigation has uncovered thousands of Puerto Rican investors who have lost a significant portion of their life savings in local closed-end funds. Our Puerto Rico bond fraud lawyers are currently representing dozens of investors both in Puerto Rico and in the US. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation.



Exclusive: UBS faces criminal probe for Puerto Rico bond fund sales – lawyers, Chicago Tribune, June 19, 2014

UBS Loans to Puerto Rico Fund Investors Said to Face U.S. Probe, Bloomberg, June 20, 2014

More Blog Posts:
Puerto Rico-Based Doral Financial Expected to Default on Over $150M in Muni Bondsg, Stockbroker Fraud Blog, May 12, 2014

FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor, Stockbroker Fraud Blog, April 27, 2014
Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013