January 16, 2015

UBS Settles SEC Dark Pool Case for $14M

A UBS AG (UBS) subsidiary has consented to pay $14.4 million to resolve Securities and Exchange Commission claims that the firm committed violations involving the marketing and operation of its dark pool. The subsidiary, UBS Securities LLC, is accused of placing some players at an advantage in its alternative trading system the UBS ATS, which is the second largest dark pool in the United States.

According to the regulator, the Swiss bank failed to adequately disclose the way the dark pool worked to all of its clients, which allowed only some investors to know all of its rules. The SEC said that beginning in 2008 and into 2012, UBS let customers turn in orders at prices with denominations under a penny even though market rules dictate that all orders cannot be in any denomination below one cent.

UBS pitched the PrimaryPegPlus (PPP) order type, which let traders sell and purchase securities at the under the one cent increment prices, primarily to market makers and high-frequency trading firms. This let them get in front of orders that were made at the legal, whole-penny prices.

The SEC also said that UBS did not tell all subscribers about the “natural-only crossing restriction,” which was supposed to ensure that certain orders would not execute against orders made by the high-frequency trading firms and market makers. The shield only benefitted orders made using UBS algorithms, which are automated trading strategies. It wasn't until 2 1/2 years after this feature's launch that every subscriber was notified of its existence.

The SEC is accusing UBS of other violations, including the submission of incomplete and inconsistent statements about sub-penny orders and its natural-only crossing restriction in Form ATSs. The firm also purportedly did not set up written standards for giving subscribers access to the natural-only crossing restriction.

The Commission says that from August 2008 to March 2009, and for a certain period in 2010, UBS failed to preserve certain order data for the UBS ATS. It is accused of violating confidentiality requirements when it gave employees that shouldn't have had access the private trading data of subscribers.

By settling, UBS is not denying or admitting to the SEC findings. Of the $14.4 million payment, $12 million is a penalty.

According to Bloomberg, a source said that the SEC is working on rules that will compel dark pools to follow some of the same requirements as exchanges. This would include requirements dealing with disclosure of order types available in the dark pools, as well as pricing data sources.

The regulator is reportedly considering whether to make dark pool operators tell investors who else is trading as opposed to keeping trader identities anonymous. Some critics have expressed concerns that dark pools give computerized trading firms the upper hand. Also, because certain dark pools use aggregated feeds to match traders, critics are worried that investors are getting dated data when considering whether to trade.

SEC Order (PDF)

More Blog Posts:
NY Sues Barclays Over Alleged High Speed Trading Favors in Dark Pool, Stockbroker Fraud Blog, June 26, 2014

Deutsche Bank, UBS Are Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Fraud Blog, July 30, 2014

SEC Working on Mutual Fund Regulations, Conducts Dark Pool Probes, Enacts New Exchange Rules, Institutional Investor Fraud Blog, November 20, 2014

January 5, 2015

Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services

Plaintiffs in Puerto Rico who say they are the beneficiaries of a trust have filed a securities lawsuit against UBS Financial Services (UBS). The beneficiaries’ complaint asserts that UBS in Puerto Rico breached its duty to properly manage funds linked to UBS’s proprietary closed-end Puerto Rico bond funds.

The beneficiaries of Nellie Sánchez Carmona's estate claim that the brokerage firm acted against their best interests when it opted to keep the trust invested in the proprietary funds—a move that earned UBS underwriting and management fees, along with commissions, and interest. The beneficiaries contend that UBS and its subsidiaries purposely prevented Sánchez Carmona from collecting benefits she was owed so that the firm could keep investing her money in the closed-end funds, which were issued by the firm, and continue to collect fees.

Also, according to the plaintiffs, for 10 years UBS prevented Sánchez Carmona from finding out that she was a beneficiary of the trust, which was set up by her husband Robert Hargen. Even though he passed away several years ago, UBS, in federal filings up to at least 2010, represented that Hargen was still alive and in possession of the trust.

During this time, plaintiffs say, UBS reinvested about $664,000 of what the trust made, placing the money in the closed-end funds and making a profit on the initial principal rather than paying out the earnings to take care of Sánchez Carmona’s medical bills, which the trust was supposed to cover. UBS also is accused of making it appear as if Hargen was a Puerto Rico resident even though he had been living in Florida since 2001. UBS allegedly did this to comply with regulations, which stipulate that investors of proprietary Puerto Rican closed-end bond have to be residents of the U.S. Commonwealth (or liquidate their holdings upon changing residencies). The plaintiffs want UBS to pay them about $3.5 million in damages and $1 million for lost income and fees.

In the last year and a half, hundreds of claimants have come forward filing claims against UBS over its Puerto Rico bond funds, which quickly lost value in August 2013 as the territory's debt imploded after years of warnings to UBS and other market participants that the Commonwealth might not be able to meet its excessive debt obligations. Many of the investors on the island contend that the bond funds were recommended to them even though they were not suitable for their goals and came with risks beyond what their portfolios could handle.

UBS is already facing around $1 billion in Puerto Rico muni bond fraud claims from investors on the island and in the mainland.

UBS Puerto Rico Bond Fraud Attorneys
Our UBS Puerto Rico bond fraud lawyers have been working hard to help investors get their money back. Contact Shepherd Smith Edwards and Kantas, LTD LLP today. Your initial case consultation with us is free.

Puerto Rico investors sue UBS for $4.5 million, InvestmentNews, December 31, 2014

More Blog Posts:
UBS To Nominate Executive from BlueMountain Hedge Fund That Challenged Puerto Rico Law on Debt Restructuring to Its Board, Stockbroker Fraud Blog, December 17, 2014

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed, Stockbroker Fraud Blog, November 18, 2014

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

December 17, 2014

UBS To Nominate Executive from BlueMountain Hedge Fund That Challenged Puerto Rico Law on Debt Restructuring to Its Board

UBS, AG (UBS) says that it intends to nominate BlueMountain Capital Management Executive Jes Staley to its board in May. Staley formerly served as a JPMorgan Chase & Co. (JPM) executive.

In a statement, UBS Chairman Axel Weber said that Staley is perfect for the role due to his professional expertise from working in global banking leadership roles for three decades. However, that may not be the only reason.

Earlier this year, BlueMountain, which is a New York-based hedge fund, joined a legal challenge against a law that would let some of the Commonwealth of Puerto Rico's agencies restructure their massive debt. UBS Puerto Rico (UBS-PR) is one of the banks accused of inappropriately placing clients’ money into closed-end funds that had high exposure to Puerto Rico municipal bonds.

When the bonds fell significantly in value last year, many investors sustained huge losses. Since then, UBS has been subject to hundreds of bond fraud arbitration cases by investors seeking to get their money back. Many claimants are alleging that the firm marketed Puerto Rico bonds to them even though the investments were unsuitable.

Following a recent meeting between officials of Puerto Rico’s power utility and investors, the prices on the territory’s bonds hit a record low. Puerto Rico Electric Power Authority is seeking to restructure $8.6 billion of debt. Under an agreement with creditors to pay back bank loans, PREPA has to submit a five-year strategic plan. The utility company recently presented an unfinished business plan. PREPA has told investors that they want more time to restructure.

On Tuesday, Puerto Rico general obligations set to mature in 2035 traded at around 84 cents on the dollar, which is the lowest it has traded since their original sale in March.

Puerto Rico Bond Fraud
In addition to representing investors who purchased securities from UBS, our Puerto Rico municipal bond fraud attorneys at Shepherd Smith Edwards and Kantas LTD LLP represent customers that bought securities from Merrill Lynch (MER), Banco Popular, and Banco Santander (SAN). Our investigation has uncovered many investors who lost much of their savings in Puerto Rican debt, with some of them seeing their life savings completely wiped out.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors in both the U.S. and in Puerto Rico. Please contact our muni bond fraud lawyers today and ask for you free case consultation.

Puerto Rico Debt Sets Record Low After Utility Meets Investors
, Bloomberg, December 16, 2014

UBS Nominates BlueMountain Executive Jes Staley to Board
, The Wall Street Journal, December 17, 2014

More Blog Posts:
Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed, Stockbroker Fraud Blog, November 18, 2014

Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS
, Stockbroker Fraud Blog, October 9, 2014

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

November 18, 2014

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

Prepa is getting ready to unveil a plan early next year to restructure its $8.6 billion of debt. Its debt has been issued a junk rating by credit rating agencies.

Meantime, Puerto Rico is talking to four bond insurers to get at least part of up to $2.9 billion in bonds insured. These are bonds the financially beleaguered Commonwealth wants to put out later this year. The bond issues would let the territory access a deeper capital pool in the municipal bond market than the small hedge funds that purchased $3.5 billion of its debt earlier this year.

Puerto Rico is also seeking to refinance a $2.2 billion loan that the Government Development Bank made to its Highways and Transportation Authority to try and improve its poor financial health and give the territory more time to reverse its failing economy. To make the sale, the island has to pass laws that would increase an oil tax that could allow it to back the bonds.

Puerto Rico Bond Fraud
Puerto Rico’s muni bonds are the focus of hundreds of FINRA arbitration claims, with many investors complaining that they sustained huge losses because they were sold investments that were too risky for what they could afford.

Brokers for UBS (UBS), Banco Santander (BNC), and Banco Popular are among those identified as having made inappropriate recommendations to customers. A number of investors lost everything.

At Shepherd Smith Edwards and Kantas LTD LLP, our Puerto Rico muni bond fraud lawyers represent investors with FINRA arbitration claims that are seeking to recover their money. Contact our securities fraud law firm today to request your free case consultation.

Puerto Rico Electric Utility’s Late Accounts Surge 219% From ’12, Bloomberg, November 17, 2014

Read the FTI Capital Advisors Report

Puerto Rico's PREPA urged to get tough on $1.8 bln owed, Reuters, November 17, 2014


More Blog Posts:
Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 9, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

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

November 3, 2014

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds

The Securities and Exchange Commission has sanctioned thirteen financial firms, including UBS Financial Services (UBS), Charles Schwab and Co. (SCHW), J.P. Morgan Securities (JPM), and Stifel Nicolaus & Co. (SF), for the improper sales of Puerto Rican junk bonds. A $100,00 minimum denomination had been established in junk bonds of $3.5 billion made by Puerto Rico several months ago. An SEC probe, however, revealed that there had been 66 instances when firms sold the bonds in transactions of under $100,000.

Municipal bond offerings are supposed to have a set minimum denomination that determines the smallest amount that a firm can sell to an investor during a single transaction. Typically, municipal issuers will establish high minimum denominations for junk bonds with a greater default risk. This is done to limit the bonds from ending up in the accounts of investors who may not be able to handle the risks.

The firms and their fines: UBS Financial Services for $56,400, Charles Schwab & Co. for $61,800, Oppenheimer & Co. (OPY) for $61,200, Wedbush Securities Inc. for $67,200, Hapoalim Securities USA for $54,000, TD Ameritrade (AMTD) for $100,800, Interactive Brokers LLC for $56,000, Stifel Nicolaus & Co. (SF) for $60,000, Investment Professionals Inc. for $67,800, Riedl First Securities Co. of Kansas for $130,000, J.P. Morgan Securities for $54,000, National Securities Corporation for $60,000, and Lebenthal & Co. for $54,000.

The firms are accused of violating Rule G-15 of the Municipal Securities Rulemaking Board. The rule sets the minimum denomination requirement. The SEC says that by conducting sales under the minimum denomination, the firms violated the Securities Exchange Act of 1934’s Section 15B(c)(1), which does not allow for any MSRB rule to be violated.

All 13 firms agreed to settle the SEC’s findings without admitting to or denying them. The firms also agreed to be censured. They will review their respective procedures and policies, as well as make the needed changes to ensure appropriate compliance moving forward.

Our Puerto Rico muni bond fraud lawyers represent investors in the Commonwealth and on the mainland. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

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

Rule G-15, Municipal Securities Rulemaking Board

Securities Exchange Act of 1934
, Legal Information Institute

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

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

UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

October 29, 2014

Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS

In its third-quarter earnings reports this week, UBS noted that claims involving its Puerto Rico closed-end municipal bond funds are reaching close to $1 billion. That is a significant jump from the $600M mark those cases reached during the second quarter of this year, and this shows that the number of cases being filed against UBS continue to grow. According to multiple reports, the investors seeking almost $1 billion in losses are alleging unsuitability, fraud, and misrepresentation.

The third quarter has been a rough one for the Swiss banking giant. Reuters reports that the entity has put aside $1.9 billion for possible legal costs.

In the past year, UBS has been in the spotlight over claims that brokers in UBS's Puerto Rico unit persuaded customers to get involved in the proprietary bond funds even if the funds were not suitable for the investors’ portfolios. Some clients reportedly were even encouraged to borrow so they could invest more.

When the muni bond funds dropped in price last year, many investors sustained huge losses. Additionally, many investors have claimed the funds and the bonds associated with the funds were misrepresented to investors on the island.

In addition to investors,regulators have expressed concern over UBS’s sale of Puerto Rico Bonds and Puerto Rico Bond funds. UBS recently agreed to pay Puerto Rico regulators $5.2 million for bond improprieties. That amount included $1.7 million in restitution to senior investors with low-net-worth who lost money in closed-end funds. However, despite the losses and regulatory scrutiny, UBS said that it intends to keep selling Puerto Rico municipal bonds.

Currently, Puerto Rico is still mired in $73 billion of debt. According to Bloomberg, the island’s lawmakers are developing a plan that would let the Infrastructure Financing Authority, known as PRIFA, sell up to $2.9 billion of bonds backing petroleum taxes to pay back the loans from the Government Development Bank. This would raise the U.S. territory’s petroleum-tax rate to $15.50 a barrel. Earlier this month, Puerto Rico paid $1.2 billion in a short-term financing deal. The notes that were sold come with a general obligation guarantee.

Traditional muni investors have started staying away from Puerto Rico, as have traditional muni funds. In the last six weeks, the Commonwealth’s junk-rated bunds have slumped, with the S&P Municipal Bond Puerto Rico Index dropping 3.25%. The territory recently borrowed $900 million from big banks, including Bank of America (BAC), J.P. Morgan (JPM), and Morgan Stanley (MS). Puerto Rico agreed to almost an 8% interest rate to borrow through the middle of next year, which is a very high rate for such short-term borrowing.

According to TheHill.com, with investor confidence in Puerto Rico declining and the island’s other financial woes, the U.S. Congress may feel compelled to set up a federal oversight board to manage the territory’s fiscal problems. However, the U.S. government previously indicated it would not bail out Puerto Rico or guarantee its debt to save it from a financial crisis.

At Shepherd Smith Edwards and Kantas, our Puerto Rico bond fraud lawyers are representing customers of UBS, Banco Santander (BNC), Banco Popular, and other brokerage firms that sustained losses caused by broker negligence and other misconduct, including the sale of Puerto Rico bonds and bond funds. Please contact our securities fraud law firm today for a free, no obligation consultation about your legal rights.

UBS facing nearly $1 billion in Puerto Rico claims, Investment News, October 28, 2014

Puerto Rico pays heavy price in $1.2 bln note sale, Reuters, October 10, 2015

Puerto Rico Sells $900 Million of Short-Term Notes, The Wall Street Journal, October 10, 2014

Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt, Bloomberg, October 29, 2014

More Blog Posts:
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

UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

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

October 20, 2014

UBS Brokers Are Still Selling Puerto Rico Muni Bonds

Even after the slew of municipal bond fraud arbitration claims from investors blaming UBS AG (UBS) for their losses sustained in Puerto Rico municipal bonds, the brokerage firm has told its brokers to continue selling the funds to clients. However, notes the broker-dealer, representatives should make sure to evaluate their recommendations in a way that is in line with UBS policies and those of the Financial Industry Regulatory Authority.

The instructions to keep selling the bond funds were documented in a four-page, unsigned memo from UBS. The firm also instructed brokers to direct any questions about the suitability of any investment recommendations to the compliance department or a branch manager. According to Financial Adviser Magazine, a UBS spokesperson said that individual financial plans are customized to a client’s goals and wealth management needs. She also pointed out that Puerto Rico municipal bonds and closed-end funds had for over a decade rendered excellent returns and tax benefits.

Nevertheless, over the past twelve months, the losses from both Puerto Rico bonds and UBS’s closed-end bond funds tied to Puerto Rico debt have been huge. Already, UBS has been named in over 500 arbitration claims after there was a sharp drop in the value of Puerto Rico bonds last year. According to Reuters, FINRA intends to add another 800 arbitrators in Puerto Rico to hear these securities cases. Previously, there were about 70 arbitrators designated to preside over the muni bond fraud claims.

Recently, UBS Financial Services of Puerto consented to pay $1.7 million in restitution to 34 Commonwealth residents who had invested in the funds. The firm also agreed to pay $35 million to an investor education fund.

UBS said it would enhance its supervision of six brokers that may have improperly advised their clients to borrow money to purchase certain funds. This borrowing may have involved use of home equity loans or margin accounts. While this strategy can increase returns it also may up the risks, which is why so many investors sustained such devastating losses. Representatives are also accused of getting investors who did not have the risk tolerance or necessary liquids assets to put their money in closed-end funds that were too big or risky for what their financial profiles could handle.

Not too long ago, credit ratings agencies cut Puerto Rico’s debt to junk status. This ratings downgrade, which was anticipated by most, has resulted in worsening losses for clients who purchased Puerto Rican debt either in Puerto Rico or in the United States.

Our Puerto Rico bond fraud lawyers represent investors with claims against UBS Puerto Rico, Banco Santander (BNC), Banco Popular, and other brokerage firms. Contact us today to request your free case consultation.

UBS Tells Brokers To Keep Selling Risky Puerto Rico Funds, Financial Adviser Magazine, October 20, 2014

Exclusive: UBS tells brokers to keep selling risky Puerto Rico funds, Reuters, October 17, 2014

More Blog Posts:
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

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

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

October 14, 2014

UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales

UBS Financial Services Incorporated of Puerto Rico (UBS) has reached a settlement with the Commonwealth’s Office of the Commissioner of Financial Institutions (OCIF) over UBS’s offering and sale of closed-end mutual funds in Puerto Rico. As part of the agreement, UBS will pay a $3.5 million fine, as well as $1.7 million in restitution to 34 clients. As is typical with such settlements, UBS is not denying or admitting to any wrongdoing.

After examining UBS’s operations between the periods of 1/1/06 through 9/30/13, OCFI discovered that UBS had placed clients with conservative risk tolerances in high concentrations of Puerto Rico Closed-End Funds (PRCEF). OCIF further alleged that UBS recommended or allowed these clients to use “non-purpose” loans to buy more PRCEF, which should have never happened. OCFI also reported irregularities in the way some clients’ accounts were managed and said UBS had engaged in inadequate supervision and recordkeeping.

The clients that are entitled to restitution are primarily elderly investors with low net worth and conservative financial profiles. UBS is going to pay them almost $1.7 million in restitution. This offer has to be made within 45 days of the settlement’s execution. The $3.5 million penalty will go to the Securities Trading, Investor Education and Training Fund.

UBS is also required to enhance its supervision of six of its agents, who may have committed practices that were objectionable, for at least six months. UBS has agreed to reassess, and perhaps even modify, its procedures and policies to make sure the firm is complying with regulations. UBS also will review additional customers’ accounts with similar profiles as the ones affected by these claims to see if further action and restitution are required.

UBS Puerto Rico is one of the firms accused of making inappropriate recommendations to investors in Puerto Rico muni bonds. When the bonds started to fail last year, many investors suffered huge losses.

Our Puerto Rico bond fraud lawyers have been meeting with investors on the island and in the U.S. to see how we can help recover their losses. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation about your investment account.

UBS Settlement with OCIF

More Blog Posts:

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds, Stockbroker Fraud Blog, August 15, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

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

August 15, 2014

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds

Even though UBS Wealth Management Americas (UBS) has been generating record revenue, the financial firm saw its profits drop upon reporting that had it put aside $44 million for litigation costs primarily related to Puerto Rico bond fraud cases. UBS’s second quarter earnings of $238 million are 3% lower than last year.

Already, UBS clients have filed hundreds of arbitration cases and a number of securities class action lawsuits contending that the brokerage firm put investors’ money in highly leveraged and unsuitable Puerto Rico municipal bond funds that dropped in value last year. These funds begun to lose value again recently.

OppenheimerFunds Inc. (OPY), which is the biggest mutual fund to hold Puerto Rico debt, has also taken a financial hit. Bloomberg reports that in the past year, the firm has seen a loss of close to a third of its funds’ assets. For example, the Oppenheimer Rochester Maryland Municipal Fund (ORMDX) directed approximately 35% of its holdings to the islands as of the end of June. As of August 4, its assets had dropped to $64.9 million. At this time last year, the fund had $96.1 million in assets.

On Thursday, the Puerto Rico Electric Power Authority (Prepa) and creditors arrived at a deal that will give the public agency time to restructure. Prepa will appoint a chief restructuring officer and must come up with a five-year business plan. The agreement will allow the Puerto Rican power authority to utilize $280 million that was in a construction fund to cover capital improvements and current costs. Prepa had until yesterday to extend its credit line with banks or restructure around $9 billion in debt.

Last month, the power authority arrived at deals with Citigroup (C), Bank of Novia Scotia (BNS) and other banks, which has allowed it to delay about $671 million in payments that it owed them. Standard & Poor’s has lowered the utility bonds’ ratings into junk territory.

Puerto Rico lawmakers recently approved legislation that would let a number of public agencies overhaul their finances. Public utilities can work out deals with bondholders to reduce their debt load. Oppenheimer Funds and Franklin Templeton (BEN) have since gone to court to challenge the constitutionality of the law. Their investment funds hold approximately $1.6 billion in Prepa bonds.

The firms believe that the power authority can fulfill its obligations without having to restructure. Puerto Rico wants the judge to dismiss the lawsuit. BlueMountain Capital Management LLC., which holds over $400 million in Prepa-issued bonds, has also filed a lawsuit.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico Bond fraud lawyers have already filed dozens of securities fraud claims against UBS and other brokerage firms related to Puerto Rico bonds or mutual funds holding Puerto Rico Bonds. We represent investors in the U.S. and in Puerto Rico. Please call us for a fee, no obligation, consultation if you or someone you know has lost money investing in Puerto Rico Bonds or funds tied to the Puerto Rico bond market.

Puerto Rico debt depresses UBS Wealth earnings, InvestmentNews, July 29, 2014

OppenheimerFunds Sees Some Funds Shrink 33% on Puerto Rico Bonds, Bloomberg, August 5, 2014

Puerto Rico PREPA Utility Announces Creditor Agreement, Extension, Barron's, August 14, 2014

More Blog Posts:
Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

OppenheimerFunds, Franklin Templeton Sue Over Puerto Rican Debt Law, Stockbroker Fraud Blog, July 2, 2014

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

August 4, 2014

SEC Charges Ex-UBS Broker in $730K Elder Financial Fraud Ponzi Scam

The Securities and Exchange Commission has filed charges against ex-UBS Wealth Management Americas (UBS) broker Donna Tucker for a Ponzi fraud that allegedly bilked elderly investors of over $730,000. Tucker is accused of misappropriating the money from UBS customers over a five-year period while she worked at the financial firm.

According to the SEC, Tucker took part in unauthorized trading, made misrepresentations to customers about the status of their funds, and forged documents and checks. She allegedly gained customers’ trust by becoming friends with them.

For example, she helped one blind couple take care of their medical needs and pay their monthly bills. The latter action gave her access their checkbook. She used this authorization to forge checks written to cash that she then gave to herself.

She also purportedly lied to the couple about their holdings and gave them bogus documents showing fake brokerage account balances. The SEC says that inn one such instance, after she allegedly took money from the couple’s IRA account, the IRS sent them a delinquency letter about the premature distribution. When the couple asked Tucker about it she claimed that the letter was a mistake and no money had been withdrawn. She also generated a fake account statement to support her lie, as well as a fake letter that was supposedly from the IRA saying the matter had been resolved.

The SEC claims that Tucker took close to $350,000 from this couple alone and hid the theft by convincing them to bank online and use electronic statements because she knew they would not be able to get them.

She also allegedly took out unauthorized margin loans on accounts of customers to pay back other accounts. Tucker then used investors’ funds to pay for vehicles, vacations, clothes, and a country club membership.

UBS has since paid back several customers for Tucker’s fraud. She resigned from UBS last year. In September 2013, the Financial Industry Regulatory Authority barred her.

Tucker is settling the SEC charges and has agreed to disgorge the monies. The order she consented to permanently enjoins her from violating the Securities Act of 1933’s Section 17(a), the Securities Exchange Act of 1934’s Section 10(b), and Rule 10b-5. Meantime, the U.S. Attorney’s Office for the Western District of Virginia has filed a parallel criminal case against her.

Senior Fraud
Elder financial fraud is a serious problem. Shepherd Smith Edwards and Kantas, LTD LLP represents senior investors and others who have suffered losses because of securities fraud. Financial fraud by brokers and investment advisors may result in a huge financial strain for elderly investors. Many of them rely on their retirement monies to carry them through for the remainder of their lives. Our securities lawyers are here to help investors recoup their losses.

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers, SEC, July 31, 2014

Read the SEC's Complaint (PDF)

More Blog Posts:
Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors, Stockbroker Fraud Blog, June 19, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

July 23, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds

The Financial Industry Regulatory Authority is reporting that roughly 400 claims have already been filed against UBS Financial Services Inc. of Puerto Rico (UBS) and other brokerage firms over the fallout of municipal bonds and bond funds related to the Commonwealth of Puerto Rico. As the U.S. territory’s bonds continue to drop in price, more investors are likely to file cases.

According to Securities Attorney Sam Edwards, one of the partners at Shepherd, Smith, Edwards & Kantas currently representing dozens of investors who lost money in these investments, ““The recent drop in Puerto Rico bond prices have resulted in Puerto Rico bonds, and the bond funds holding Puerto Rico bonds, to give back most, if not all, of the gains of the last nine months. Bond prices have largely returned to the lows suffered in the Fall of 2013.” Mr. Edwards continues, “This is likely to result in new groups of clients coming forward as the rally in Puerto Rico debt appears to have been short-lived.”

Investors, many of them locals, took huge financial losses when two dozen Puerto Rico bond funds sponsored by UBS and Popular Securities, Inc. (Banco Popular) declined in value last year. Many of the investors are retirees and other senior investors that have now lost their life savings. However, they are not the only ones impacted.

Even investors who did not directly invest in Puerto Rico bonds are feeling the effects. That is because there are many single-state and nationally marketed municipal bond funds in the U.S. that also got involved in the island’s debt. Many of the bond funds that were constructed for residents of different states hold Puerto Rico bond funds because of their advantageous tax status. However, with that tax advantage came significant risks.

Franklin Templeton Investments (BEN) and Oppenheimer Funds offer the 10 bond mutual funds with the most exposure to Puerto Rico bonds. Recently, these two fund managers filed a lawsuit seeking to have a new Puerto Rico law, known as the Public Corporation Debt Enforcement and Recovery Act, struck down.

The law, which lets parts of the U.S. territory restructure its debt, is causing investors to worry about significant losses to principle. The funds are arguing that the law violates the U.S. Constitution because it lets the territory impair certain contracts. They contend that the federal government is the only entity allowed to make bankruptcy law.

Puerto Rico is now asking a federal court to throw out the lawsuit, arguing that states are only barred from making bankruptcy law if this conflicts with federal law. It says that contracts are allowed to be impaired if this means fulfilling an “important government purpose.” Puerto Rico also noted that existing bankruptcy laws are not applicable to the island.

Additionally, the U.S. territory argues, the lawsuit was not timely because the specific local bonds at issue are from the Puerto Rico Electric Power Authority (PREPA) and the electric authority has not yet attempted to restructure its debt. The fund managers collectively hold around $1.7 billion in PREPA debt.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud law attorneys are representing many Puerto Rico residents. We have already filed more than 20 case against UBS and others, with dozens more pending. We represent investors in the U.S. and in the Commonwealth.

The first securities arbitration hearings will likely happen sometime this year. FINRA arbitrators will hear most of the muni bond fraud cases in Puerto Rico.

If you are an investor who has suffered losses from investing in these Puerto Rico bonds or bond funds holding Puerto Rico debt, please contact us today. There is still time to try to get your money back.

A Deluge of Legal Claims Hit UBS’ Puerto Rico Unit Over Closed End Bond Funds, The Wall Street Journal, July 21, 2014

Puerto Rico seeks dismissal of U.S. bond funds' lawsuit, Reuters, July 21, 2014

Puerto Rico Electric Power Authority

More Blog Posts:

OppenheimerFunds, Franklin Templeton Sue Over Puerto Rican Debt Law, Stockbroker Fraud Blog, July 2, 2014

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales, Stockbroker Fraud Blog, June 21, 2014

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

June 21, 2014

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales

Authorities in the United States are reportedly investigating UBS AG (UBSN) for its actions in Puerto Rico. The criminal fraud investigation comes in the wake of allegations that an ex-UBS broker in Puerto Rico told clients to improperly borrow money to purchase local mutual funds that later sank.

The investigation is centered around non-purpose loans that came from UBS Bank USA of Utah. The former UBS broker, Jose Ramirez, organized the loans for clients. The bank has since let him go.

Under internal guidelines, such loans are not allowed to be used for the purchase of securities since those very securities will be the collateral for the loans. Now, however, investors are saying that Ramirez was utilizing these loans to purchase more shares in the bond funds for them. Some are even saying that he gave them paperwork that made it appear as if customers were borrowing from the UBS bank in Puerto Rico and not the one in Utah. More than 100 investors may have been affected.

The investors contend that Ramirez told these clients to place their loan proceeds in accounts at an unrelated local bank. They wrote him checks for the amounts of the loan and he allegedly used the money to purchase more bond fund shares for these investors.

Now investigators are trying to figure out whether UBS executives on the mainland and in Puerto Rico were aware that proceeds from loans made by the firm’s unit in Utah were used in a manner that violated the bank’s own lending rules. If these executives were aware of what was going on but failed to act to prevent the fraud, they could be found criminally accountable.

Another problem with the loans is that the US territory’s Office of the Financial Institutions Commissioner never granted UBS bank a license to lend them in Puerto Rico. After the lending of the loans was discovered, the bank consented to sell the loans to its brokerage firm in Puerto Rico. But when clients were asked to sign statements promising not to use the proceeds from the loan to buy securities, many had to refuse because some of their securities were purchased with the loan proceeds. They then had to pay back the loans by selling their shares of the bond funds right away at a loss.

Puerto Rico Muni Bonds
Whether borrowed money was used to purchase UBS’s Puerto Rico municipal bond funds or not, investors in Puerto Rico muni bonds sustained huge losses when they failed last year. Many of the muni bonds included Puerto Rico government bonds that UBS underwrote. Those bonds have now all been downgraded to “junk” status, which some being close to default or a significant restricting.

Our investigation has uncovered thousands of Puerto Rican investors who have lost a significant portion of their life savings in local closed-end funds. Our Puerto Rico bond fraud lawyers are currently representing dozens of investors both in Puerto Rico and in the US. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation.

Exclusive: UBS faces criminal probe for Puerto Rico bond fund sales - lawyers, Chicago Tribune, June 19, 2014

UBS Loans to Puerto Rico Fund Investors Said to Face U.S. Probe, Bloomberg, June 20, 2014

More Blog Posts:
Puerto Rico-Based Doral Financial Expected to Default on Over $150M in Muni Bondsg, Stockbroker Fraud Blog, May 12, 2014

FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor, Stockbroker Fraud Blog, April 27, 2014

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

January 28, 2014

Ex-UBS Global Wealth Chief Exposed by Whistleblower Pleads Not Guilty To Tax Fraud Conspiracy

Raoul Weil, who previously served as head of UBS (UBS)’s Global Wealth Management division, has pleaded guilty to fraud conspiracy charges related to a US tax investigation probe involving the Swiss bank. Weil, 54, is accused of conspiring to help thousands of American citizens hide $12 billion at the bank.

Until his arrest last year, Weil was listed as a fugitive in the United States. In federal court in Florida, he was allowed a $10.5 million bond. His first court hearing will be in December. He has until February 12 to reverse his plea to guilty. If convicted, however, he could end up in prison for conspiracy to commit tax fraud for up to five years.

Weil was indicted because of information that UBS whistleblower Bradley Birkenfeld provided to the US Department of Justice and the Internal Revenue Service. The latter, also a former UBS banker, has since been awarded $104 million for helping the federal government start an international crackdown on tax evasion that wealthy Americans had been engaging in for decades through Swiss banks.

Birkenfeld, 47, gave prosecutors details about how UBS engaged in tax evasion and even confessed to engaging in errand running for rich clients. In 2009, the bank settled with the US for $780 million to resolve a criminal case over secret offshore accounts. UBS also turned over the names of over 4,000 US taxpayers who were account holders.

Since Birkenfeld’s whistleblower case, over 33,000 US taxpayers have admitted to keeping undeclared accounts overseas and they have had to pay over $5 billion in penalties and taxes. Birkenfeld, who pleaded guilty to one count of conspiracy to defraud the US was sentenced to 40 months. (A US law allows the IRS to pay up to 30% to a whistleblower for exposing wrongdoing—convicted felons are not precluded from this benefit.)

Puerto Rico Bond Fraud
In other UBS news, the bank has been embroiled in trouble over municipal bonds sold by its UBS Puerto Rico unit. Investors are now flocking to securities lawyers to file securities claims and lawsuit alleging municipal bond fraud that has even cost some of them their life savings. Many say that UBS brokers told them not only to get involved in UBS Bond funds, including the Tax Free Puerto Rico Fund II, but also, these financial representatives recommended that they borrow funds either via a margin account or more traditional methods so that they invest even more money in these proprietary funds. Now, it is these municipal bond fund investors who must deal with the financial losses.

Our Puerto Rico bond fund lawyers represent investors that invested in muni bonds through UBS, Banco Santander, and Banco Popular. Contact Shepherd Smith and Edwards and Kantas, LTD LLP today.

Former UBS banker Raoul Weil pleads not guilty to helping Americans dodge taxes, The Telegraph, January 7, 2014

Whistleblower Gets $104 Million, Wall Street Journal, September 11, 2012

More Blog Posts:
Billions of Dollars Have Already Been Lost by Investors in Puerto Rico Closed-End Funds that were Sold by UBS, Stockbroker Fraud Blog, January 10, 2014

Detroit, MI Can’t Pay $165M to UBS & Bank of America For Swaps Deal, Rules Judge, Institutional Investor Securities Blog, January 21, 2014

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

January 10, 2014

Billions of Dollars Have Already Been Lost by Investors in Puerto Rico Closed-End Funds that were Sold by UBS

According to new research from a consulting group, the losses of investors who purchased UBS Puerto Rico closed-end municipal bond funds is now in the billions of dollars. During the first nine months of 2013 alone, reports InvestmentNews.com, 19 of UBS’s Puerto Rico closed-end funds lost $1.6 billion. The ones that lost the most were reportedly the funds with big muni bond holdings that were underwritten by UBS.

UBS Financial Services, Inc.’s Puerto Rico unit put together and sold roughly $10 billion in closed-end bond funds between 2002 and 2012. As the funds were only registered to be sold in Puerto Rico, they were largely composed of Puerto Rico municipal bonds and could be sold only to Puerto Rican residents, who have now been hit with huge losses as the value of Puerto Rican debt has fallen sharply over the last few months.

In addition to UBS’s bond funds, other bond funds that have purchased Puerto Rican debt and investors holding individual Puerto Rican bonds in the US have been significantly impacted. In fact, if Puerto Rico were to default on its debt, the impact would be far reaching. According to Forbes.com, a default in Puerto Rico would change the price of the whole $3.7 trillion US municipal bond market, which could cost municipalities and states in the US billions of dollars in interest rate charges. Already, investors on the mainland found themselves paying close to $10 billion last year because Puerto Rico’s $52 billion in bonds were down 20% on average.

Please contact our Puerto Rico bond fund lawyers if you bought closed-end bond funds, other municipal bond funds or Puerto Rican bonds from UBS, Banco Santander (SAN.MC), Banco Popular, or other brokerage firms in Puerto Rico and the US. Our securities fraud law firm represents muni bond investors in the mainland and the commonwealth. Your case consultation with us is free.

Could a Puerto Rico Default Hammer the $3.7 Trillion U.S. Muni Bond Market in 2014?, Forbes, January 3, 2014

UBS Puerto Rico closed-end muni investors losing billions, Investment News, January 6, 2014

More Blog Posts:
UBS Bank USA No Longer to Offer Loans Collateralized with Puerto Rico Securities, Stockbroker Fraud Blog, December 28, 2013

Puerto Rico Reportedly Among Those that Engaged in "Scoop & Toss" Tactic with Municipal Bonds, Stockbroker Fraud Blog, December 7, 2013

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

December 14, 2013

Moody's Reassessment of Puerto Rico Bonds Does Nothing to Relieve Investor Worries

One day after Moody’s Investor Service placed Puerto Rico’s general obligation bonds rating of Baa3 on review for downgrade to junk status, the credit rating agency affirmed the ratings it had earlier in the year given four banks: Banco Santander Puerto Rico, Popular Inc. and its subsidiaries, FirstBank Puerto Rico, and Doral Financial Corporation, as well as the ratings for senior bonds put out by Doral Financial and Banco Santander Puerto Rico through the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority. The ratings outlook for First Bank, Popular, and Doral Financial stayed negative, as did Banco Santander Puerto Rico’s BFSR/BCA. (However, the outlook on that bank’s supported deposit and debt ratings are stable due to the bank’s affiliation with Santander Bank NA, which is a US affiliate.)

Puerto Rico, which is a major municipal bond issuer, has been close to or in recession for nearly a decade and has over $70 billion in debt. Moody’s said it is worried about the territory’s growing dependence on outside short-term debt, “weakening liquidity,” limited market access, and its poor economy. The credit rater believes that the fiscal and economic challenges that the territory continues to face will keep threatening the “health of the banking system.” Noting that the banks’ non-performing assets continue to remain negative relative to banks in the US mainland, the agency said that this could result in more losses if things don’t get better.

Unfortunately, many investors who got involved in Puerto Rico muni bonds were not apprised of the risks or could have never handled the high risks to begin with. Some investors have lost their retirement or life savings as a result.

In the last several months, many Puerto Rican investors who had accounts with UBS Financial Services Inc. (UBS), Banco Santander (SAN.MC), and Banco Popular have come forward complaining of significant losses in their accounts due to the fall in Puerto Rican municipal bonds or products tied to those investments. Our securities fraud lawyers have agreed to take on a number of these municipal bond cases and we are continuing to meet with investors in the US and in Puerto Rico.

Among those being blamed for the losses is UBS broker David Lugo. One of our clients has already filed a FINRA arbitration case against UBS seeking to recover $15 million as a result of Mr. Lugo and UBS’s management of his accounts. According to that complaint, Mr. Lugo and UBS recommended the client invest almost all of his savings in low-rated Puerto Rican bonds or UBS’s proprietary closed-end Puerto Rican Bond Funds.

In accordance with the claim filed with FINRA, once all of the clients’ own funds were invested in these securities, UBS encouraged to the client to take out tens-of-millions in loans, much of which was used to buy more UBS bond funds. When the market for Puerto Rican bonds began to dry up, the large debts began to be called in, wiping out the clients’ entire account in a matter of weeks. In addition to the one client, Mr. Lugo’s brokerage industry records indicate several others have filed similar complaints against him in the last few weeks. Our firm is also representing more than a dozen other investors who worked with David Lugo and UBS and we will also be filing FINRA arbitration claims for the recovery of their savings in the coming weeks.

Please contact our Puerto Rico municipal bond lawyers to request your free case assessment.

Moody's affirms ratings of Puerto Rican banks, Moody's, December 12, 2013

Moody's puts Puerto Rico on review for downgrade, Reuters, December 11, 2013

More Blog Posts:
Puerto Rico Reportedly Among Those that Engaged in "Scoop & Toss" Tactic with Municipal Bonds, Stockbroker Fraud Blog, December 7, 2013

Why did UBS Financial Advisors Recommend Puerto Rico Muni Bonds to Elderly and Retired Investors?, Stockbroker Fraud Blog, November 6, 2013

Liquidators of Bear Stearns Hedge Funds Sue S & P, Moody’s and Fitch for $1.12B, Institutional Investor Securities Blog, August 6, 2013

November 6, 2013

Why did UBS Financial Advisors Recommend Puerto Rico Muni Bonds to Elderly and Retired Investors?

In the wake of the Puerto Rico Bond Crisis, our securities fraud lawyers cannot help but wonder why advisors of UBS Financial Services of Puerto Rico, Inc. (UBS) recommended that retiree and conservative investors get involved with municipal bonds that had close to junk ratings. Now, many of these investors are coming forward to pursue securities claims against the firm.

According to Forbes, merely assessing Puerto Rico muni bonds via Fitch, Moody’s and Standard & Poor’s should have caused any good financial adviser to make sure that the junk bonds were only recommended to sophisticated clients that could afford the risks. Also, signs that Puerto Rico’s debt was only growing worse have been around for years.

Still, during the last decade, UBS managed to package $10 billion of closed-end bond funds full of risky Puerto Rican bonds that were highly leveraged and sold them to many retired and conservative investors. Now, customers want to know, how could UBS have overlooked the US territory’s unfunded liabilities, serious budget deficits, strict cash flow limitations, and slowed economic growth?

The New American reports that Puerto Rico’s debt is close to four times greater than the $18 billion debt experienced by Detroit, which forced the Michigan city to file for bankruptcy protection. Even though Puerto Rico’s muni bonds are exempt from local, federal or state taxes, their interest rates have soared since Detroit’s bankruptcy filing to 8-10% and some say this will go up even more to bring in new investors. The New American says that there are signs that this bond debacle could lead to trouble for the US:

- Moody’s downgrading of Puerto Rico’s debt to right above junk and gave it a negative outlook.

- UBS’s Puerto Rico branch settling with the SEC over allegations that it artificially supported bond prices and tried to cover up the fact that the territory’s economy was failing.

- Puerto Rico’s treasury officers borrowing in the private market sector because they were having trouble accessing the bond market.

- Puerto Rico having a pension plan that is just 7% funded.

- Puerto Rico’s government having a negative cash flow for over a decade.

Unfortunately, triple tax emptions and other incentives let the Puerto Rican government continue to borrow from investors at rates that were artificially attractive while the latter wrongly assumed that their investments were secure. Some of the funds holding these high risk bonds have lost much of their value. For example, the UBS Puerto Rico Tax-Free Target Maturity Fund II and the UBS Puerto Rico Tax-Free Target Maturity Fund have declined in value by 83.5% and 88.9%, respectively.

Puerto Rico Bond Fund Attorneys

Our Puerto Rico bond lawyers at Shepherd Smith Edwards and Kantas are meeting with customers in the US and in Puerto Rico who invested in municipal securities and bonds through UBS, Banco Santander (SAN.MC), Banco Popular, and other brokerage firms. We can help you explore your legal options.

Puerto Rico's Bond Prices Are Falling Sharply, Foreshadowing U.S. Problems, The New American, October 29, 2013

How Did UBS Recommend Puerto Rico Junk For Mom And Pop Clients?, Forbes, November 5, 2013

More Blog Posts:
US Treasury Doesn't Intend to Provide Aid Over Puerto Rico Bond Fund Debacle, Says Spokesperson, Stockbroker Fraud Blog, October 10, 2013
Two Investment Advisers Sue Twitter for Secondary Market Fraud, Stockbroker Fraud Blog, November 5, 2013

Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle, Institutional Investor Securities Blog, October 28, 2013

October 10, 2013

US Treasury Doesn't Intend to Provide Aid Over Puerto Rico Bond Fund Debacle, Says Spokesperson

Hope that the US Treasury will save ailing Puerto Rican bonds does not appear to be warranted. According to a spokesperson for the department, who did not wish to be named, the Treasury will not be providing help to the US territory over the municipal bond fund debacle.

However, reports Fox News, the federal government is expected to provide incentives to enhance Puerto Rico's failing economy. Right now, Puerto Rico’s debt, which is mostly in mutual funds, is at about $70 billion—that’s close to 2% of the $3.7 trillion municipal bond market. This is significantly higher than Detroit’s $18 billion debt that forced that city to file for municipal bankruptcy earlier this year.

Yet even as Puerto Rico’s debt continues to grow, it won't be allowed to file for Chapter 9 bankruptcy because like US states, territories cannot seek such protection. That said, officials in Puerto Rico maintain that it isn’t bankrupt yet.

This year, Puerto Rican bonds have dropped 18%—Standard & Poor’s says this will be the bonds’ worst year since 2000. Because Puerto Rico is a US territory, it can sell bonds that lead to tax-exempt interest paid in all the US states, and these bonds come with higher interest than a lot of others due to its typically low credit rating. Also, some bonds are insured for default, while others come with legal structures that give the appearance that they are bulletproof—although such assurances may be illusory.

Due to all these advantages, investors have been getting involved in Puerto Rico bonds for years, even as the territory’s debt has gone up. The commonwealth selling hundreds of millions of dollars of new bonds to pay up older bonds, as well as $2.5 billion of bonds to raise money for its beleaguered pension system and to pay for its annual budget deficits. Now it appears that this gluttony of debt may finally push the bonds down to junk status.

Puerto Rico Bond Fund Claims
At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities fraud lawyers are investigating claims for investors that bought Puerto Rio municipal bonds and bond funds. The securities were sold by UBS (UBS), Banco Popular, and Banco Santander (SAN.MC), and there are growing concerns that the investments were not appropriate for some of these investors.

Many investors are now claiming that the Puerto Rico bond funds were sold to them as stable, safe, and would generate income for them. Yet, the bonds and bond funds have resulted in huge financial losses. Some customers have lost all of their retirement.

Over the years, our securities lawyers have helped thousands of investors recoup their investment fraud losses. Contact our Puerto Rico bond fund law firm today.

Puerto Rico, At Brink Of Bankruptcy, May Get U.S. Economic Boost, Fox News/Reuters, October 9, 2013

Worsening Debt Crisis Threatens Puerto Rico, New York Times, October 7, 2013

U.S. Treasury Said to Have No Puerto Rico Assistance Plan, Bloomberg Business, October 8, 2013

More Blog Posts:
Puerto Rico Municipal Bonds, Stockbroker Fraud Blog, October 9, 2013

Muni Bond Funds Hit by Puerto Rico’s Debt Problems, Institutional Investor Securities Blog, October 9, 2013

Muni Bonds Draw Investors But Come With Serious Risks, Stockbroker Fraud Blog, June 11, 2013

August 30, 2013

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

UBS Settles Unregistered Assistant Allegations for $4.5M
UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.

SEC Sues Over Alleged $6M Ponzi Scam that Invested in Bounty Hunter Enterprises
The Securities and Exchange Commission says that it now as an emergency court order freezing the assets of Guaranty Reserves Trust LLC and its owner John Marcum. The Indiana man is accused of defrauding over three dozen individuals by purportedly getting them to invest in promissory notes. He also is accused of promising them double-digit yearly returns with no risk to principal and told them that he would be day trading.

The regulator says that Marcum got investors to give them their retirement by presenting himself as a trader who was able to garner high returns without loss and he even provided them with account statements exhibiting yearly returns of over 20%. In truth, contends the SEC. Marcum lost over $900K on any trading he did do, while the rest of the funds paid for his lavish lifestyle or was used to invest in ventures, including a bridal shop, a bounty hunter-owned restaurant, and a reality TV show about bounty hunters.

California Investment Adviser Sued by SEC for Alleged Cherry Picking
Ian O. Mausner and his firm J.S. Oliver Capital Management are now facing SEC charges accusing them of taking part in a cherry picking scam that directed winning trades toward certain clients, such as hedge funds in which the investment adviser and his family had investments. According to the Commission, Mausner and his company also misappropriated over $1.1M in soft dollars, which are rebates or credits that clients pay for trades in their accounts.

As a result, says the regulator, investors lost about $10.7 million from the financial scam, which would have occurred from 6/08 through 11/09, with the misappropriation of soft dollars taking place after this period through 11/11. The SEC says the soft dollars were used to pay money that was owed to Masuner’s wife, business “rent” for space used in his home, “outside research” services that were actually payments made to a JS Oliver employee, and maintenance on a personal timeshare in NY. The SEC investigation into the allegations is ongoing.

Our securities lawyers represent investors that have been bilked by brokers, investment advisers, broker-dealers, hedge fund managers, and other industry professionals.

SEC says Indiana man used Ponzi scheme to fund a reality TV show, Chicago Tribune, August 26, 2013

SEC Charges San Diego-Based Investment Adviser in Cherry-Picking and Soft Dollar Schemes, SEC, August 30, 2013

UBS to pay hefty settlement over unregistered assistants, Investment News, August 26, 2013

More Blog Posts:
Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims, Stockbroker Fraud Blog, August 27, 2013

Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages, Institutional Investor Securities Blog, August 28, 2013

July 12, 2013

Financial Firms Update: Morgan Stanley Now Owns Smith Barney, Wells Fargo & JPMorgan Defeat Estimates, MLB All-Star Sues UBS for $7.6M, & Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy

Morgan Stanley Buys Smith Barney from Citigroup
Morgan Stanley (MS) now owns Smith Barney, which it just bought from Citigroup (C) for $9.4 billion. Smith Barney’s new name is Morgan Stanley Wealth Management. Based on its new number of financial advisers, the deal makes Morgan Stanley the largest Wall Street firm and comes in the wake of Federal Reserve approval.

Wells Fargo & JPMorgan Defeat Analysts’ Estimates
JPMorgan Chase (JPM) says it experienced a 31% rise in second quarter earnings, surpassing analysts expectations it would garner $5.47 billion on $24.84 billion, and, instead generating, $6.5 billion in earnings and $25 billion of revenue. A year ago for the same period, revenue for the financial firm was at $22 billion.

Meantime, Wells Fargo (WF) is also reporting a 19% profit rise for Q2. This is its 14th quarterly profit increase in a row and 9th consecutive record report. While net income for the same period last year was at $4.6 billion, its net income second quarter for 2013 was $5.5 billion.

5-Time MLB All-Star Sues UBS for $7.6 Million
Retired fiive-time Major League Baseball All-Star Mike Sweeney is suing UBS Financial Services Inc. (UBS) and his former broker there for $7.6 million. Per the securities fraud case, broker Ralph A. Jackson III invested half of Sweeney’s portfolio, worth millions of dollars, in high-risk private placements that failed.

Sweeney contends that he was an inexperienced investor who trusted Jackson to make sure his money was being invested conservatively. He says that over a five-year period, the UBS broker put $6.85M of his portfolio in private-equity investments that were misrepresented to him as safe and suitable, as well $2.7M into other investments without his consent. Sweeney, who hit it big when he signed with the Kansas City Royals, claims he lost $4.9M.

Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy
Financial adviser and nationally syndicated radio host Ray Lucia and his firm Raymond J. Lucia Cos. Inc. must pay fines for allegedly providing misleading information related to his wealth-management strategy known as “Buckets of Money." The Securities and Exchange Commission is accusing the California adviser of causing retirees to believe that his approach would allow them to make income that was inflation-adjusted for life.

Now, an administrative-law judge has taken away Lucia’s adviser registration and fined him $50,000. His firm, which must pay $250,000, also has lost its license. Judge Cameron Elliot found that for years, Lucia misrepresented any purported back-testings’ validity in seminars about saving for retirement. The SEC contends that Lucia and the firm hardly, if at all, conducted any back-tests.

Morgan Stanley Completes Purchase of Smith Barney Venture, Bloomberg, June 28, 2013

JPMorgan Chase and Wells Fargo Beat Estimates, Crossing Wall Street, July 12, 2013

Retired Slugger Sue UBS for $7.6 Million, Courthouse News, June 17, 2013

Ray Lucia, firm fined buckets of money over investment claims, Investment News, July 9, 2013

More Blog Posts:
Ameriprise Financial, Securities America, & Three Other Brokerage Firms Reach $9.6M Non-Traded REIT Securities Settlement with Massachusetts Financial Regulator, Stockbroker Fraud Blog, May 22, 2013

Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Securities Case Over Insuring The $160M in Disgorgement Paid to the SEC Goes Back to Trial Court, Institutional Investor Securities Blog, July 6, 2013

July 2, 2013

Financial Firms in the Headlines: UBS Charges Financial Planning Fees, MF Global Customers Seek to Cap Ex-Leaders’ Legal Defense Expenses, Ex-Thompson REIT CFO is Suspended

UBS Wealth Management Customers Now Paying a Fee for Financial Plans
UBS (UBS) Wealth Management Americas is now charging a fee for the financial plans that advisers are customizing for the firm’s clients. According to the head of the wealth management advisor group head Jason Chandler, this new policy wasn’t implemented to up firm revenues, although it has. Rather, it was set up to increase the level of commitment clients have to their plan, which he say is what happens when they have to pay money for one.

To date this year, the company has made $3 million in financial plan fees, up from $1.4 million from last year. The average fee amount is $4,100. Advisers who design the financial plans are getting 50% of the fee that they charge, while 15% of the fees earned from the plans end up in expense accounts for them.

MF Global Customers Seek to Cap Legal Defense Bills of Brokerage Firm’s Former Executives
MF Global Inc. customers want to limit how much the former top executives of the failed brokerage firm pay for their legal defense. In a court filing, attorneys for the customers expressed concern at how quickly the legal costs of Chief Executive Jon Corzine and other former executives are growing.

The MF Global clients are suing about two dozen former managers for their alleged misconduct that they believe caused the broker-dealer’s collapse. Of the $200 million in insurance coverage that the firm has to cover legal judgments, $30 million has gone toward the ex-executives defense and they are asking for another $10 million. The brokerage customers want a $40 million cap placed on the defense costs. They are worried that the more the ex-MF Global executives spend toward defense the less money there will be to go toward their own $300 million shortfall they are facing and they won’t be made whole for the financial losses they sustained.

Ex-Thompson REIT CFO Gets Five-Month Securities Industry Suspension
The Financial Industry Regulatory Authority is suspending Wendy J. Worcester from the securities industry for five months. Worcester was previously chief financial officer of real estate investor Tony Thompson's nontraded real estate investment trust, as well as co-chief compliance officer of TNP Securities LLC, which is the brokerage firm controlled by Thompson. The SRO says that Worcester did not perform independent and sufficient due diligence into Thompson’s real estate dealings, including three Thompson National Properties LLC-sponsored private placement offerings. This caused her to allegedly compromise TNP Securities’ independence.

According to FINRA, When Thompson National Properties was in financial trouble in 2009, suffering nearly $25.8 million in losses and a negative net equity of $13.6 million while launching REIT The TNP Strategic Retail Trust Inc., two Thompson private placement note programs would go on to pay old investors with either new investor funds or money from some other part of the business. Worcester is settling the REIT securities case without denying or admitting to the allegations.

Finding fees: UBS charging for financial plans, Investment News, June 11, 2013

MF Global Customers Want to Cap Ex-Leaders' Legal Defense Costs, Dow Jones/Program Business, June 7, 2013

FINRA Sanctioning Former TNP Compliance Officer for Failed Due Diligence as to TNP REIT Offerings

More Blog Posts:
FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

Lawmakers Address Securities Bills Regarding Audit Rotation Requirements, Dodd-Frank, M & A Business Broker Registration, & Senior Fraud, Institutional Investor Securities Blog, June 28, 2013

FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches, Stockbroker Fraud Blog, June 28, 2013