Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS

In its third-quarter earnings reports this week, UBS noted that claims involving its Puerto Rico closed-end municipal bond funds are reaching close to $1 billion. That is a significant jump from the $600M mark those cases reached during the second quarter of this year, and this shows that the number of cases being filed against UBS continue to grow. According to multiple reports, the investors seeking almost $1 billion in losses are alleging unsuitability, fraud, and misrepresentation.

The third quarter has been a rough one for the Swiss banking giant. Reuters reports that the entity has put aside $1.9 billion for possible legal costs.

In the past year, UBS has been in the spotlight over claims that brokers in UBS’s Puerto Rico unit persuaded customers to get involved in the proprietary bond funds even if the funds were not suitable for the investors’ portfolios. Some clients reportedly were even encouraged to borrow so they could invest more.

When the muni bond funds dropped in price last year, many investors sustained huge losses. Additionally, many investors have claimed the funds and the bonds associated with the funds were misrepresented to investors on the island.

In addition to investors,regulators have expressed concern over UBS’s sale of Puerto Rico Bonds and Puerto Rico Bond funds. UBS recently agreed to pay Puerto Rico regulators $5.2 million for bond improprieties. That amount included $1.7 million in restitution to senior investors with low-net-worth who lost money in closed-end funds. However, despite the losses and regulatory scrutiny, UBS said that it intends to keep selling Puerto Rico municipal bonds.

Currently, Puerto Rico is still mired in $73 billion of debt. According to Bloomberg, the island’s lawmakers are developing a plan that would let the Infrastructure Financing Authority, known as PRIFA, sell up to $2.9 billion of bonds backing petroleum taxes to pay back the loans from the Government Development Bank. This would raise the U.S. territory’s petroleum-tax rate to $15.50 a barrel. Earlier this month, Puerto Rico paid $1.2 billion in a short-term financing deal. The notes that were sold come with a general obligation guarantee.

Traditional muni investors have started staying away from Puerto Rico, as have traditional muni funds. In the last six weeks, the Commonwealth’s junk-rated bunds have slumped, with the S&P Municipal Bond Puerto Rico Index dropping 3.25%. The territory recently borrowed $900 million from big banks, including Bank of America (BAC), J.P. Morgan (JPM), and Morgan Stanley (MS). Puerto Rico agreed to almost an 8% interest rate to borrow through the middle of next year, which is a very high rate for such short-term borrowing.

According to, with investor confidence in Puerto Rico declining and the island’s other financial woes, the U.S. Congress may feel compelled to set up a federal oversight board to manage the territory’s fiscal problems. However, the U.S. government previously indicated it would not bail out Puerto Rico or guarantee its debt to save it from a financial crisis.

At Shepherd Smith Edwards and Kantas, our Puerto Rico bond fraud lawyers are representing customers of UBS, Banco Santander (BNC), Banco Popular, and other brokerage firms that sustained losses caused by broker negligence and other misconduct, including the sale of Puerto Rico bonds and bond funds. Please contact our securities fraud law firm today for a free, no obligation consultation about your legal rights.



UBS facing nearly $1 billion in Puerto Rico claims, Investment News, October 28, 2014
Puerto Rico pays heavy price in $1.2 bln note sale, Reuters, October 10, 2015

Puerto Rico Sells $900 Million of Short-Term Notes, The Wall Street Journal, October 10, 2014

Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt, Bloomberg, October 29, 2014

More Blog Posts:
UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales, Stockbroker Fraud Blog, October 14, 2014
UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013