UBS Puerto Rico to Pay $18.5M to Settle FINRA Sanctions Over Supervisory Failures Related to Closed-End Fund Sales

The Financial Industry Regulatory Authority (FINRA) is fining UBS Financial Services Incorporated of Puerto Rico (UBS PR) $7.5 million for supervisory failures involving its transactions in UBS sponsored Puerto Rican closed-end funds (CEF). The brokerage firm also must pay $11 million in client restitution for losses related to those shares.

According to FINRA, a self-regulatory organization for the brokerage industry, for over four years, UBS PR neglected to monitor the combined concentration and leverage levels in customer accounts to make sure transactions were suitable for the respective profiles and objectives of its customers. FINRA said that considering that the firm’s retail customers typically kept high concentration levels in the country’s assets and frequently used these concentrated accounts as cash loan collateral-and in light of the U.S. territory’s volatile economy-UBS should have put into place a system that could reasonably identify and prevent unsuitable transactions.

Instead, the regulator said, UBS PR persuaded certain customers to establish credit lines that were collateralized by their securities accounts. If the value of the account dropped under the required collateral level, the customer would have to deposit more assets or liquidate securities. A credit line that is collateralized by an account that is very concentrated could significantly increase an investor’s risk of loss. When the market dropped in 2013, and a lot of the CEFs lost value, customers were forced to sustain hefty losses to satisfy the calls they received notifying them that their account’s value was now under the required collateral level.

The FINRA sanctions against UBS PR come just as the U.S. Securities and Exchange Commission and UBS PR reached their own settlement related to broker fraud involving the CEFs. To resolve those charges, the firm will pay $15 million. You can read more about that case here.

Over the past two years, our Puerto Rico bond fraud lawyers have been working with clients who sustained significant losses from closed-end funds or Puerto Rican bonds sold by UBS, Banco Popular, Banco Santander (SAN), Oriental Securities and other brokerage firms. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.



FINRA Sanctions UBS Puerto Rico $18.5 Million for Supervisory Failures Regarding Sales of Puerto Rican Closed-End Funds and Related Loans, FINRA, September 29, 2015
SEC Charges UBS Puerto Rico and Two Individuals in Actions Relating to Former Broker’s Fraud, SEC, September 29, 2015