UBS Must Pay Investor $1M for Puerto Rico Bond Fund Portfolio

A Financial Industry Regulatory Authority Panel (“FINRA”) has ordered UBS Financial Services Inc. of Puerto Rico and UBS Wealth Management (collectively “UBS”) to pay a client from Puerto Rico $1 million to repurchase the Puerto Rico portfolio of proprietary bond funds sold to him and many other Puerto Rico investors. According to the Panel’s decision, Mr. Burgos Rosado, a senior investor at age 66, lost $737,000 in the beleaguered closed-end funds.

He had opened his account with UBS in 2011 and invested the money he made from running a bodega for years. After Puerto Rico municipal bonds failed in 2013, the original $1.1 million he invested had fallen in value to less than $4,000. Just in September of that year, when news that the bond funds were failing en masse, Burgos Rosado reportedly approached UBS because his balance had dropped some $200,000. He was encourage to stay with his portfolio.

The FINRA panel noted that while investors typically assume their account’s risks after they’ve been given sufficient notice of the risks, the arbitrators did not think this applied in the case of Burgos Rosado, who does not speak fluent English and was clearly relying on the recommendation of his UBS advisor. Even after Burgos Rosado asked for documents in Spanish, the brokerage-firm reportedly issued his monthly statements and other information in English.

In their ruling, the FINRA arbitration panel described Burgos Rosado as a “conservative investor” who lived frugally, saving his income and profits from his business opportunities. Pointing out that his account was “over-concentrated,” the panel said that municipal the bonds were “clearly unsuitable” for an investor such as Mr. Burgos Rosado. The panelists also criticized UBS’ sales practices for the Puerto Rico closed-end funds, noting that UBS pressured its brokers to sell the funds and make sure that clients stayed invested.

The Panel ultimately ordered UBS to repurchase the closed-end funds from Mr. Burgos Rosado at full price minus roughly half of the interest Mr. Burgos Rosado received while he held the funds. In reaction to the award, UBS issued its own statement saying that it does not agree with the award for Burgos Rosado, and that it does not believe other panels will follow the decision.

However, the arbitration ruling in Burgos Rosado’s favor comes just days after another FINRA panel ordered UBS to pay a different investor $200,000 for her losses in the same group of Puerto Rico closed-end funds. In that case, UBS argued that the Claimant, Yolanda Bauza, only lost $8,000, because of investment income she received before the funds failed two years ago. The panel disagreed, awarding damages much closer to the trading losses from the bond funds.

The Puerto Rico bond fraud claims of Burgos Rosado and Bauza are just two of the hundreds of FINRA arbitration claims still pending against UBS, Banco Popular, Banco Santander (SAN), and other brokerage firms for selling the securities to investors for whom they were inappropriate and too risky. Many of these investors were retirees.

Some of these funds lost up to almost two-thirds of their value between 2011 and 2013 and now investors are trying to recoup their losses. UBS, in particular, has come under fire for its sales practices and misrepresentations and omissions concerning the risks of the bond funds and Puerto Rico debt.

Earlier this year, a recording of former UBS Puerto Rico chairman Miguel Ferrer surfaced in which he can be heard telling brokers after they expressed misgivings about the bond funds that they needed to sell more funds or risk losing their jobs. Investors were even allegedly encouraged by UBS brokers to borrow funds through lines of credit so they could invest even more money in the bond funds.

Our Puerto Rico municipal bond fraud lawyers are working for investors in the U.S. and in the Commonwealth to recoup their losses in Puerto Rico debt and other investments. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.



UBS must buy back investor’s Puerto Rico bond funds for $1 million, Business Insider/Reuters, May 19, 2015

UBS ordered to pay investor $1 million as Puerto Rico claims roll in, Investment News, May 20, 2015

UBS Ordered to Pay Retired Investor $200,000 For Puerto Rico Bond Fund Losses, Stockbroker Fraud Blog, May 14, 2015