June 15, 2016

US Supreme Court Strikes Down Law That Would Have Let Puerto Rico Public Utilities Restructure Their Debt

The U.S. Supreme Court struck down a Puerto Rico law that would have let its public utilities restructure $20 billion of debt. The territory’s officials enacted the Recovery Act in 2014 in an attempt to help it deal with its $70 billion of debt. Puerto Rico’s large public utilities owe about $26 billion to bondholders and banks. It was their creditors that challenged the law in federal court.

Puerto Rico is not allowed to file for bankruptcy protection. The Commonwealth is excluded from Chapter 9, which is the section of the bankruptcy code that usually applies to local governments, including cities, public utilities, counties, and other branches that have become insolvent and need help. (Puerto Rico has tried to convince the U.S. congress to get rid of the 1984 rule that excluded it from Chapter 9. No reason has been provided for why it was deliberately left out.)

Writing for the majority in the Supreme Court ruling, Justice Clarence Thomas reminded us that the federal bankruptcy code does not let lower government units and states enact their own bankruptcy laws. However, U.S. legislators are looking for ways to potentially help Puerto Rico.

A bill passed by the U.S. House of Representatives to help the territory deal with its debt crisis has gone to the Senate for consideration. If passed into law, the bill would establish a board to manage the restructuring of Puerto Rico’s debt and oversee the territory’s finances. The Commonwealth sure could use the help.

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June 10, 2016

U.S. House Passes Puerto Rico Debt Rescue Bill

The U.S. House of Representatives passed PROMESA, a bill to help Puerto Rico deal with its recession and its over $70 billion debt, in a landslide vote of 297-to-127. The island has been in financial trouble for some time now, with many of its residents leaving because the situation has gotten so bad. Already, Puerto Rico has defaulted three times in the last year on the debt payments that it owes.

PROMESA would establish an Oversight Board that will regulate the U.S. territory’s finances. The Oversight Board would be able to sell Puerto Rican government assets, let the island reduce the minimum wage for certain workers on a temporary basis, and decide whether to restructure the island’s debt. PROMESA is not a “bailout” of Puerto Rico as no taxpayer money would be used to pay off Puerto Rico’s debt and no federal funds would be committed under the bill.

Congress’s passage of PROMESA comes as the island is encountering new financial problems, including that the Commonwealth owes $2 billion on July 1 of this year. If the U.S. Senate were to pass PROMESA before then, however, Puerto Rico may not have to pay the full amount in July. The bill gives the Commonwealth a grace period through at least February 2017.

Under that “grace period” provision, Puerto Rico would be able to pay just interest on its debts and creditors wouldn't be allowed to go after the Commonwealth with lawsuits. The grace period would hopefully give the board time to devise a plan.

Even though a solution is clearly needed, there are those who oppose the measure, including some creditors, interest groups, and bondholders. Puerto Rico’s $7 billion debt is held by local residents, financial institutions, U.S. hedge funds, and mutual fund firms, which means that there are investors on the mainland who are also holding Puerto Rico debt.

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May 3, 2016

Puerto Rico Misses Most of Its $422M Debt Payment

Puerto Rico Governor Alejandro García Padilla announced this week that the U.S. territory would not be paying most of the $422 million in debt that was due on Monday. However, it did pay $23 million in interest. As the Puerto Rican government had swapped $33 million of debt for new debt that matured at a later date, the principal it missed on its Government Development Bank-issued bonds was $367 million.

This was a significant development in the stand-off between the Commonwealth and Washington DC, as well as investors in Puerto Rican debt. Moreover, there are much more significant sums due this summer and, if this week’s failure to pay is an indication, investors could be in trouble.

Puerto Rico currently owes more than $70 billion to bond holders. Over $2 billion in bond payments are due this summer, including $805 million in Puerto Rico general obligation bonds. In the wake of this latest default there is growing concern that there will be more defaults in the future.

One significant Puerto Rico bond issuer, the Puerto Rico Government Development Bank (“GDB”), says it has arrived at a tentative deal with a group of hedge funds holding $900 million of the bank’s debt in which the funds would agree to a possible reduction on the dollar of their original securities’ face value. This group of institutional investors, which is being called the “Ad Hoc Group of bondholders," include Claren Road Asset Management, Avenue Capital Management, Fir Tree Partners, Brigade Capital Management, Solus Alternative Asset Management, and Fore Research Management. The GDB arrived at a similar deal with credit unions that are holding about $33 million in debt. Regardless, according to Bloomberg, analysts at Moody’s Investors Service said that even if creditors agree to a non-payment, it would still be a default.

Mutual funds, bond insurers, hedge funds, and individual investors are among those still holding the Commonwealth’s debt. Many of them got involved with Puerto Rico closed-end bond funds because of the high yields and tax benefits. When the securities plunged in value a few years ago, thousands of investors lost a significant portion of their savings. Retail investors, retirees, and small business owners were hit especially hard.

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April 30, 2016

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.

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March 28, 2016

UBS Ordered to Pay Investors Over $47K in Puerto Rico Bond Fraud Case

UBS Group AG (UBS) must pay Obdulio Melendez Ramos, Carlos L. Merced, and Ramon Velez Garcia over $470K for losses they sustained from investing in Puerto Rico bonds/bond funds that lost value. The three men filed their case with the Financial Industry Regulatory Authority. They contend their accounts were over-concentrated in risky Puerto Rico bonds/bond funds. Ramos, Garcia, and Merced had alleged negligent supervision and fraud.

Addressing the panel’s ruling, a spokesperson for UBS called the decision “disappointing” and said that he disagreed with the outcome. In an emailed statement, Gregg Rosenberg contended that that there were specific circumstances involved with this case and its outcome was not a indicative of how other arbitrators might rule in similar cases. However, according to a recent supplement for the firm’s fourth quarter earnings results, since August 2013 drops in Puerto Rico municipal bond prices, as well as in the prices of related proprietary funds UBS manages and distributes, have led to customer complaints, regulatory inquiries, and arbitrations filed against the firm.

Claimed damages against UBS are estimated to total $1.5B. The vast majority of those claims are still outstanding.

Many investors have accused UBS Puerto Rico of inappropriately persuading them to invest in the island’s municipal bonds even though these investments were not appropriate for them. UBS brokers even purportedly encouraged some investors to borrow so that they could become more heavily invested in the bonds. When Puerto Rico bond prices plunged, it was the investors, many of whom were retirees, that suffered.

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February 22, 2016

UBS Group Must Pay Investor $1.45M For Puerto Rico Bonds

Pursuant to a recent arbitration ruling, UBS Group AG (UBS) must pay $1.45 million to Christel Marie Bengoa Lopez for losses she sustained in Puerto Rico closed-end bond funds. According to her arbitration claim, filed with the Financial Industry Regulatory Authority (“FINRA”), Bengoa Lopez invested a $5 million gift from her father after he sold his business.

Her broker at UBS purportedly touted the Puerto Rico closed-end bond funds as conservative, safe investments. She claims that he recommended that she use a credit line issued by UBS that would utilize her investments as collateral to purchase an apartment. However, when the closed-end bond funds became worth less than the balance of the loan, the brokerage firm insisted that it be paid back in full.

Commenting on the arbitrator’s ruling, UBS noted that it disagreed with the case outcome.

Unfortunately, numerous investors have lost substantial amounts of money from investing in Puerto Rico funds, many of which were sold by UBS. These funds were concentrated in the U.S. territory’s debt. When some funds lost half or more for their value in 2013, investors realized that the Puerto Rico investments were not as safe as represented. In fact, some investors lost everything.

Brokers from UBS, Banco Santander (SAN), Banco Popular, and other brokerage firms on the island are accused of steering investors toward Puerto Rico closed-end bond funds and individual Puerto Rico bonds even though Puerto Rico debt was not the best investment match for investors in terms of the latter's goals and the degree of risk their portfolios could handle. Since 2013, Puerto Rico has been struggling to pay back $70 billion in debt—held not just by hedge funds and other institutional creditors but also by middle class Puerto Ricans, who hold about 30%, reports CNN, and other average Americans, who hold about 15%.

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February 11, 2016

Bondholder Group with $17.3B in Puerto Rico Debt Proposes Debt Restructuring Plan

The Puerto Rico Sales Tax Financing Corporation (COFINA) has submitted a plan to restructure the financially beleaguered island’s debt. COFINA, which is comprised of investors who possess debt backed by sales-tax revenues, has issued $17.3 billion in Puerto Rico debt—$7.5 billion in senior debt and $9.7 billion in second lien debt.

COFINA’s proposal is in response to another plan submitted by the island’s development bank earlier this month. With its proposed plan, COFINA is asking Puerto Rico to suspend repayments to members of the bondholder group until 2018, when payments would steadily grow to at least $600 million by 2021.

In exchange for the delayed payment, the bondholders are asking for the preservation of the notes’ tax-backed guarantee. Already, COFINA’s payments due this fiscal year have been put aside with its bond trustee.

The bondholder’s group includes creditors such as Whitebox Advisors, Metropolitan Life Insurance and Golden Tree Asset Management. The bondholder group believes that delaying repayments for two years should give the island time to recover financially.

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January 25, 2016

UBS Shutters MLPL and MLPV Funds Following Millions of Dollars in Investor Losses

UBS AG (UBS) is reportedly closing down two of its exchange traded note (ETN) funds that were concentrated in master limited partnerships:

· The $11M ETRACS 2x Monthly Leveraged S&P MLP Index ETN (MLPV), which was just issued last July

· The $113M ETRACS 2x Monthly Leveraged Long Alerian MLP Infrastructure ETN (MLPL)

The move comes following the collapse of the MLPV, which is down to just $6.6/share and the MLPL, which is now at $12.60/share.

With the MLPL and MLPV, their notes weren’t due to expire until after 2040. UBS, in its press release, noted that an “Acceleration Event" occurred, which was sparked by intraday indicative value hitting $5.00 or less on 1/20/16. It was oil’s sharp price decline that activated the acceleration event.

It appears that investors may not have known that such an event could compel the funds to instantly liquidate holdings at prices that could wipe out shareholder value. Some of their advisers may not have been aware of the ETNs mandatory liquidity provisions or that they were exposed to volatile commodities, including oil, to such a degree. For example, master limited partnership investments are heavily connected to natural and energy resource companies that are very dependent on oil prices staying high.

If your financial adviser recommended that you invest in either the ETRACS 2x Monthly Leveraged Long Alerian MLP Infrastructure ETN or the ETRACS 2x Monthly Leveraged S&P MLP Index please contact our securities fraud law firm right away. Shepherd Smith Edwards and Kantas, LTD LLP is looking into possible securities claims against broker-dealers and investment advisers who recommended that investors back these securities.

It is important that advisers and brokers make sure that investing in gas and oil and commodities-related investments is suitable for an investor, his/her risk tolerance, and investment goals. Also, financial representatives have a responsibility to understand the risks involved and properly communicate these to clients so that the latter understand what they are getting involved in.

If you are an investor who backed one or both of these UBS MLP ETNs, please contact our securities law firm right away. Shepherd Smith Edwards and Kantas, LTD LLP is also investigating claims involving investors whose brokers or investment advisers recommended that they invest in structured notes, leveraged ETFs, exchange traded notes, private placements, individual stocks, mutual funds, and other oil and gas commodities products.

UBS Shuts Two MLP ETNs After Steep Declines, Barron's, January 20, 2016

UBS ETRACS Launches 2X Leveraged S&P MLP Index ETN Offering Significant Income Potential, Yahoo, July 15, 2015

December 31, 2015

Puerto Rico Will Make $330M in Bond Payments, Defaults on About $37M

The U.S. Commonwealth of Puerto Rico will pay about $330 million of what it owes on general obligation bonds, while defaulting on bonds of approximately $37 million that are mostly owed to the Puerto Rico Infrastructure Financing Authority (Prifa) and the Public Finance Corp. Puerto Rico general obligation debt is constitutionally-guaranteed and some of the money to pay for that debt had been originally earmarked for bonds that do not have as strong of legal protections.

This has led to Financial Guaranty Insurance Co. and Ambac Financial Group Inc., which together insure over $860 million in Prifa bonds, sending a letter to Puerto Rico government officials. In the note, they called the redirecting of the funds illegal.

This is not the first time Puerto Rico has defaulted on bond payments owed. It missed payments last year and its government has already warned that further payments may be missed this year. The territory owes investors approximately $72 billion.

In December, the Puerto Rico Electric Power Authority (PREPA) arrived at a partial-default deal with bond insurers and creditors, reducing debt payments by almost 50% every year for the next five years. Creditors would take a 15% loss in exchange for stronger legal claims on the debt that is left. However, legislation still must be approved to finalize the arrangement.

Worries that creditors will sue has led to Puerto Rico asking the U.S. Congress to grant it bankruptcy protection so it can file for Chapter 9. One of the purposes of the latest bond payment plan is to delay these possible lawsuits while the territory buys more time to work out a deal with negotiators. And, while Democrats and the White House have asked Congress to pass legislation that would let the island restructure its debt, Republican lawmakers have thwarted those efforts. Now, many are expecting these creditor lawsuits in the coming days.

Continue reading "Puerto Rico Will Make $330M in Bond Payments, Defaults on About $37M" »

October 19, 2015

UBS Advisory Firms To Pay Investors $13M For Failure to Disclose Closed-End Fund Strategy Modification

UBS Fund Advisor LLC and UBS Willow Management LLC will pay $17.5M, including $13 million to investors that were hurt to resolve Securities and Exchange Commission charges accusing them of failing to disclose that there was a change in an investment strategy involving closed-end fund UBS Willow Fund LLC. The two UBS (UBS) advisory firms have advised the fund.

The SEC contends that from 2000 through 2008, UBS Willow Management — which was a joint venture between an outside portfolio manager and UBS Fund Advisor – invested the assets of the Willow Fund in line with the strategy discussed in marketing collateral and offering documents. However, according to the regulator's order that instituted a settled administrative proceeding, in 2008, the fund advisor changed tactics and went from focusing on investments in debt put out by beleaguered companies to buying big amounts of credit default swaps.

The Willow fund started to sustain huge losses because of the credit default swaps, which went from 2.6% of the fund's market value in ’08 to over 25% by March ’09. The fund was eventually liquidated three years later.

The SEC says that UBS Willow Management failed to notify its board of directors or the fund’s investors that the investment strategy had changed. For a time, a marketing brochure given to prospective investors misstated the strategy of the fund, and letters to investors included misleading or false information about credit default swap exposure.

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October 14, 2015

UBS To Pay $19.5M Over Notes Tied to Currency Index

UBS AG (UBS) has agreed to pay $19.5 million to resolve SEC charges accusing the firm of making misleading or false statements and omissions in offering materials for structured notes connected to a proprietary strategy for foreign exchange trading. The firm is accused of falsely stating to investors in the United States the structured notes linked to the V10 Currency Index with Volatility Cap were dependent upon a systematic and transparent strategy for currency trading that employed market prices to calculate the financial instruments that were underlying the index. The SEC said that UBS made undisclosed hedging trades, which lowered the index price by as much as 5%. The firm is settling without denying or admitting to the regulator’s findings.

About 1900 US investors purchased approximately $19M of structured notes connected to the index from December ’09 to November ’10. The SEC contends UBS did not have an effective procedure, policy, or process for making sure that the individuals mainly responsible for the offering documents for the notes in the US knew that UBS employees in Switzerland were taking part in practices that could hurt the price inputs for calculating the V10 Index. The firm also purportedly did not disclose that it took unwarranted markups on hedging trades, hedged trades with non-systemic spreads, and traded prior to certain hedging transactions.

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September 30, 2015

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.

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

September 1, 2015

FINRA Orders UBS to Pay Investors Over $2.9M For Puerto Rico Bond and Fund Losses

UBS (UBS) must pay over $2.9M to investors Andres Ricardo Gomez and Ana Teresa Lopez-Gonzales for losses related to their investments in Puerto Rico securities. Mr. Ricardo, Ms. Lopez-Gonzales and their relatives filed an arbitration case with the Financial Industry Regulatory Authority (“FINRA”) claiming breach of fiduciary duty, fraud, breach of contract, negligence, unsuitability, misrepresentation and omission, overconcentration, and failure to supervise under FINRA rules and Puerto Rican law.

Mr. Ricardo’s and Ms. Lopez-Gonzales’ relatives resolved the securities fraud case for an undisclosed sum before the FINRA arbitration panel issued its ruling. The allegations are related to investments in Puerto Rico municipal bonds, UBS proprietary closed-end funds, and the use of Claimants’ investments as collateral to borrow money through credit lines. UBS Financial Services and UBS Financial Services Inc. of Puerto Rico denied all claims.

The Claimants had initially sought $10 million in compensatory damages and other appropriate relief, the cancellation of all loan balances, disgorgement of fees and commissions earned by UBS, pre- and post-award interest, legal fees, expenses, and other fees. Claimants also sought punitive damages.

In response, UBS sought to have the Puerto Rico bond fund case dismissed. In addition, UBS requested that the FINRA panel order Mr. Ricardo and one of the other claimants pay $500,000 in damages.

Continue reading "FINRA Orders UBS to Pay Investors Over $2.9M For Puerto Rico Bond and Fund Losses" »

August 16, 2015

UBS Puerto Rico Branch Manager Had Warned that Brokers Were Pushing Improper Loan Practices

According to Reuters, internal correspondence records show that in 2012, a former branch manager at UBS Puerto Rico (UBS) warned the Swiss banking giant’s officials that its brokers were encouraging customers to get involved in improper loan practices. In a number of emails, Carlos Capacete, who was a branch manager at the time, wrote to at least two bank officers noting his suspicions of misconduct.

Reuters says that in the documents it reviewed, Capacete told regional manager Doel Garcia that he had encouraged Mariela Torres, a UBS Puerto Rico compliance director, to look into suspect loans. In another email, Capacete followed up with his inquiry to see if the loans had been investigated for possible misuse involving the bank’s credit lines.

Then, in yet another email, Capacete documented what he knew about the loans, which he believed were fraudulent, explained how he discovered the purported wrongdoing, and noted his efforts to notify Torres about the alleged misconduct. Capacete also wrote that a UBS attorney had told him that the firm had conducted an audit and found that his suspicions were wrong.

Despite this alleged audit, late last year UBS reached a $5.2 million municipal bond settlement with Puerto Rico's Office of the Commissioner of Financial Institutions to resolve allegations of improper loan practices. The bank settled that case without denying or admitting to the charges. It did, however, consent to enhancing its supervision of several brokers whom regulators said may have steered clients toward improperly borrowing money to purchase more funds. UBS also terminated a broker for the same allegations and received an arbitration award of $2.5 million against it in an early case concerning the same broker.

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August 11, 2015

UBS Ordered to Pay Over $2.5M to Retired Couple in Puerto Rico Bond Fraud Case

UBS Financial Services, Inc. and UBS Financial Services of Puerto Rico (collectively “UBS”) must pay over $2.5 million to Orlando Rodriguez Gonzales and Milagros Vila Maldonado for their investment losses related to the proprietary closed-end bond funds that they bought in Puerto Rico. The funds were sold to them by former UBS broker Jose Gabriel Ramirez, Jr., who is often referred to as “The Whopper.”

The San Juan, Puerto Rico couple, who are in their seventies, claim that they gave their liquid savings to UBS to invest. According to their complaint, the Whopper recommended they take out a $3 million loan and reinvest $2 million of that in the closed-end funds.

The result was that Gonzalez and Maldonado lost roughly $2.1 million in assets after the funds abruptly and swiftly dropped in value in 2013. Gonzalez and Maldonado filed a Financial Industry Regulatory Authority arbitration claim alleging breach of fiduciary duty, unsuitable investment, fraud, and negligence related to the Puerto Rico closed-end mutual funds.

Continue reading " UBS Ordered to Pay Over $2.5M to Retired Couple in Puerto Rico Bond Fraud Case" »

July 27, 2015

UBS Warns Investors to Stay Away from Puerto Rico Bond Funds

In a complete turnaround, UBS AG (UBS) is now telling clients to step away from Puerto Rico bond funds. Reuters reports that in a recent letter, the firm’s Puerto Rico arm told clients that they would be contacted shortly regarding alternative investments.

Reasons cited for the warning is that the funds can no longer be used as loan collateral in the wake of the U.S. territory’s financial woes. Puerto Rico is currently $72 billion in debt. Concerns over its economy were not eased when Governor Alejandro García Padilla recently asked the island’s debt holders for help in postponing bond payments and restructuring the Commonwealth’s debt.

Reuters also reported that in the letter to UBS customers – issued on July 13 – UBS said the firm would lower the collateral value given to every Puerto Rico closed-end fund share to zero. However, noted the news agency, despite the declaration of zero value for the funds’ shares, the brokerage firm continues to list share prices on its website.

UBS Puerto Rico’s decision to reject the funds as collateral shows just how high risk the firm now views these investments. According to Sam Edwards, a partner in Shepherd, Smith, Edwards & Kantas, who is currently representing dozens of Puerto Rico investors, “UBS came up with the scheme to use the Closed-End Funds as collateral for loans from UBS Bank since they were not eligible for margin loans. It was that leverage against already internally leveraged losses that causes some of the worst losses on the island. UBS is now pulling the plug on its own plan and effectively admitting this was a faulty idea and not only too risky for investors, but now, too risky for UBS, who designed the plan in the first place.”

Once again, the evidence appears to support that UBS is protecting itself at the expense of its customers.

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July 1, 2015

As Puerto Rico Asks Creditors for Concessions, S & P Downgrades the Territory’s Debt and Investors Get Ready for More Losses

Puerto Rico Governor Alejandro García Padilla says that the U.S. territory cannot pay back its $72 billion debt without concessions from its creditors, including U.S. mutual funds and hedge funds. According to the Governor, the Commonwealth’s efforts to restructure its debt and cut spending have failed.

Following the Governor’s announcement, credit rater Standard & Poor’s Ratings Services downgraded Puerto Rico’s credit rating from CCC-plus to CCC-minus. The rating covers the island’s entire debt, including the debt of its Employees Retirement System and the Municipal Finance Agency.

García Padilla and Puerto Rico’s government development bank also issued a report backing his statements. The executive summary was written by Anne Krueger, a former World Bank Chief Economist and the International Monetary Fund’s first deputy managing director, as well as Ranjit Teja and Andrew Wolfe, who are both economists.

In their “Krueger Report,” the economists said that they found the territory’s debt to be unsustainable. Based on the report and Puerto Rico’s own analysis, García Padilla wants to defer debts so that Puerto Rico can continue to negotiate with creditors. Some payments could be deferred for up to five years. The Governor said, “This is not politics, this is math.”

Continue reading "As Puerto Rico Asks Creditors for Concessions, S & P Downgrades the Territory’s Debt and Investors Get Ready for More Losses" »

June 15, 2015

FINRA Pursues Broker For Allegedly Trying to Bilk Elderly Investor with Alzheimer’s of $1.8M

The Financial Industry Regulatory Authority Inc. has filed an elder financial fraud case against broker John Waszolek, who worked for UBS Wealth Management (UBS) at the time of the allegations. According to the self-regulatory organization, in 2009, Waszkolek took advantage of an 81-year-old client when he had her appoint him as a beneficiary of her trust even though she lacked the “testamentary capacity” to make such decisions and would not have been able to protect herself from exploitation. Testamentary capacity refers to a person’s mental and legal ability to make or modify a will.

The elderly widow lived by herself and had been a client of Waszolek since 1982. However, contends FINRA, it wasn’t until 2008 as her health worsened that the broker allegedly began to go above and beyond his professional obligation to her. He was the one that purportedly took her to see the doctor, who diagnosed her with Alzheimer’s. The regulator also says that he met with an estate planning lawyer so that he could be appointed as his client’s agent and given power of attorney. He wanted her trust modified so that he would be named the residual beneficiary.

When the estate planning lawyer refused because the elderly women lacked testamentary capacity, Waszolek purportedly suggested that his client see another lawyer. The amendment made to her trust would cause some $1.3 million that was supposed to be divided among four charities to go to the broker instead. That figure would eventually go up to $1.8 million.

Continue reading "FINRA Pursues Broker For Allegedly Trying to Bilk Elderly Investor with Alzheimer’s of $1.8M" »

May 20, 2015

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

May 14, 2015

UBS Ordered to Pay Retired Investor $200,000 For Puerto Rico Bond Fund Losses

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