BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources

According to sources, an announcement is expected this week regarding the sale of UBS Puerto Rico’s (UBS-PR) mutual funds operations to BlackRock Asset Management (BLK). The move, say sources, is part of the Swiss giant’s strategy to exit the island.

To date, investors have filed nearly $1 billion in securities arbitration claims against UBS Puerto Rico alleging fraud and other wrongdoing in the sale of the funds. The broker-dealer recently consented to pay a fine of $5.2 million over fund improprieties. The settlement, reached with the Commonwealth’s Office of the Commissioner of Financial Institutions, included $1.7 million in restitution to 34 local low net-worth residents who had invested in Puerto Rico closed-end bond funds that were sold by UBS.

One investor was not happy with the settlement and some of the terms and individuals involved, which have not been disclosed. He is now suing the regulator. Last week, Martínez-Umpierre asked a local court to order the release of the confidential documents used to arrive at the settlement. He wants to find out how the 34 investors who will be getting restitution were chosen and how much they lost. Investors who have filed Financial Industry Regulatory Authority arbitration claims against UBS are not eligible for compensation either.

Martínez-Umpierre also wants to find out whether his broker was one of the six UBS employees now subject to extra supervision, per the settlement terms. Rafael Blanco-Latorre, who is the Financial Institution’s commissioner, said that disclosing the documents would reveal UBS clients’ financial and personal information. He also pointed out that because his office is not taking action against any of the brokers, their confidentiality should be protected.

This week, UBS was one of 13 firms sanctioned by the SEC over the improper sale of Puerto Rico junk bonds. You can read more about the sanctions imposed and the firms involved here.

It was in the fall of last year when UBS first came under close scrutiny related to investor allegations that the firm’s brokers had misrepresented the risks involved in UBS-PR’s proprietary bond funds, even encouraging many clients to borrow funds so that they could invest more in the funds. Yet even as far back as 2012, UBS Financial Services Inc. of Puerto Rico was already settling allegations related to closed-end mutual funds.

In May of that year, the brokerage firm consented to pay the U.S. Securities and Exchange Commission $26.6 million to resolve allegations that it had bilked customers by concealing its control of the secondary market related to nearly two dozen proprietary, closed-end mutual funds. The firm settled without denying or settling wrongdoing.

In Puerto Rico and the U.S., Shepherd Smith Edwards and Kantas, LTD LLP represents clients who invested in Puerto Rico muni bonds and sustained substantial and unnecessary losses. Contact our UBS Puerto Rico bond fraud lawyers today for your free case consultation.



Lawsuit seeks documents in Puerto Rico fund settlement with UBS, Reuters, November 3, 2014

SEC Sanctions 13 Firms for Improper Sales of Puerto Rico Junk Bonds, SEC, November 3, 2014

More Blog Posts:
Investors Have Filed Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 29, 2014

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