A Financial Industry Regulatory Authority (“FINRA”) panel has ordered UBS Financial Services, Inc. and UBS Financial Services of Puerto Rico (collectively “UBS”) to pay an investor $200,000 for losses she sustained by investing in UBS’s Puerto Rico closed-end bond funds. This is the first known ruling from a FINRA arbitration panel in the hundreds of municipal bond fraud lawsuits filed by investors over the last few years.
The investor, Yolanda Bauza, invested money she obtained in a car accident settlement. In her Puerto Rico bond fraud case, Bauza alleged misrepresentations, securities fraud, and other wrongdoing. In addition to the $200,000 award, the arbitrators denied the firm’s request to remove information about the case from the public records of David Lugo and Carlos Gonzalez, two of the brokers who advised Bauza.
According to Sam Edwards, a partner with Shepherd, Smith, Edwards & Kantas, who is representing a number of Puerto Rico bond fund investors, “We are very pleased that FINRA’s arbitrators recognized what those of us representing the many thousands of investors in Puerto Rico and abroad have known for almost two years: UBS’s Puerto Rico bond funds were highly conflicted, very risky and completely misrepresented to investors. They were suitable for almost no investors. As a result, those who invested in these bond funds, like Ms. Bauza, should be fairly compensated.”
The slew of Puerto Rico bond cases, which come in the wake of a number of funds losing up to two-thirds of their value between 2011 and 2013, have been weighing on UBS. This is the first award. In addition to UBS’s woes with the bond funds and local Puerto Rico bonds, the territory is now contending with $73 billion in debt, which, it is estimated, Puerto Rico cannot afford to repay.
Investors, including those who should have never invested in the municipal bonds because their portfolios were never equipped to handle the risks and had no need for tax-free income, have sustained huge losses. UBS Puerto Rico brokers, in particular, have been singled out for the way they made inappropriate investment recommendations to customers, including using loans against the bond funds to buy more funds.
Specifically, some investors have complained that UBS Puerto Rico brokers, including David Lugo, convinced them to borrow money so they could invest even more cash in the bond funds. Many of these investors are retirees, like Ms. Bauza, who have lost their entire savings because they followed UBS’ advice.
In 2012, the U.S. Securities and Exchange Commission filed charges against UBS. It accused the firm of concealing that there was a liquidity crisis, making misleading statements to investors, and hiding control of the secondary market for nearly two dozen proprietary closed-end funds. The regulator also filed charges against ex-chief executive Miguel A. Ferrer and capital markets head Carlos J. Ortiz. Without denying or agreeing to the charges, UBS settled with the SEC for $26.6 million.
In Puerto Rico and the U.S., Shepherd Smith Edwards and Kantas, LTD LLP is helping investor pursue their municipal bond fraud claims in arbitration. Please contact our Puerto Rico bond fraud attorneys today so we can help you explore your legal options. We also represent clients who purchased these municipal bonds through Banco Santander (SAN), Banco Popular, and other brokerage firms.
UBS must pay $200,000 to Puerto Rico fund investor, Reuters, May 13, 2015
More Blog Posts:
Puerto Rico’s General Obligation Rating is Downgraded to CCC+, Stockbroker Fraud Blog, April 28, 2015
Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013
Killeen Man Accused of Texas Securities Fraud Targeting Military, Stockbroker Fraud Blog, April 23, 2015