November 4, 2014

BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources

According to sources, an announcement is expected this week regarding the sale of UBS Puerto Rico’s (UBS-PR) mutual funds operations to BlackRock Asset Management (BLK). The move, say sources, is part of the Swiss giant’s strategy to exit the island.

To date, investors have filed nearly $1 billion in securities arbitration claims against UBS Puerto Rico alleging fraud and other wrongdoing in the sale of the funds. The broker-dealer recently consented to pay a fine of $5.2 million over fund improprieties. The settlement, reached with the Commonwealth’s Office of the Commissioner of Financial Institutions, included $1.7 million in restitution to 34 local low net-worth residents who had invested in Puerto Rico closed-end bond funds that were sold by UBS.

One investor was not happy with the settlement and some of the terms and individuals involved, which have not been disclosed. He is now suing the regulator. Last week, Martínez-Umpierre asked a local court to order the release of the confidential documents used to arrive at the settlement. He wants to find out how the 34 investors who will be getting restitution were chosen and how much they lost. Investors who have filed Financial Industry Regulatory Authority arbitration claims against UBS are not eligible for compensation either.

Martínez-Umpierre also wants to find out whether his broker was one of the six UBS employees now subject to extra supervision, per the settlement terms. Rafael Blanco-Latorre, who is the Financial Institution’s commissioner, said that disclosing the documents would reveal UBS clients’ financial and personal information. He also pointed out that because his office is not taking action against any of the brokers, their confidentiality should be protected.

This week, UBS was one of 13 firms sanctioned by the SEC over the improper sale of Puerto Rico junk bonds. You can read more about the sanctions imposed and the firms involved here.

It was in the fall of last year when UBS first came under close scrutiny related to investor allegations that the firm’s brokers had misrepresented the risks involved in UBS-PR’s proprietary bond funds, even encouraging many clients to borrow funds so that they could invest more in the funds. Yet even as far back as 2012, UBS Financial Services Inc. of Puerto Rico was already settling allegations related to closed-end mutual funds.

In May of that year, the brokerage firm consented to pay the U.S. Securities and Exchange Commission $26.6 million to resolve allegations that it had bilked customers by concealing its control of the secondary market related to nearly two dozen proprietary, closed-end mutual funds. The firm settled without denying or settling wrongdoing.

In Puerto Rico and the U.S., Shepherd Smith Edwards and Kantas, LTD LLP represents clients who invested in Puerto Rico muni bonds and sustained substantial and unnecessary losses. Contact our UBS Puerto Rico bond fraud lawyers today for your free case consultation.


Lawsuit seeks documents in Puerto Rico fund settlement with UBS, Reuters, November 3, 2014

SEC Sanctions 13 Firms for Improper Sales of Puerto Rico Junk Bonds, SEC, November 3, 2014


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

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

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

June 23, 2014

SEC Chairman Mary Jo White Wants Reforms Made to Bond Market

U.S. Securities and Exchange Commission Chairman Mary Jo White wants significant reforms made to the bond market. Speaking at the Economic Club of New York, White spoke about how trading in these fixed income markets are “highly decentralized.”
She expressed concern that technology was being used in these markets to make this decentralized approach to trading more beneficial for market intermediaries.

According to Reuters, White’s speech is a sign that the SEC is at last making an effort to implement recommendations it made in 2012 about the $3.7 million municipal securities market. The regulator is launching an initiative that would mandate that alternative trading systems and other electronic dealer networks make available to the public their best prices for municipal bonds and corporate bonds. This should give smaller retail investors, and not just certain select parties, pre-trading price data.

White also expressed support for a Municipal Securities Rulemaking Board-drafted measure that would mandate that municipal bond dealers abide by best execution rules. These regulations demand that broker-dealers execute orders for customers at the best price and in the shortest amount of time. The Financial Industry Regulatory Authority and MSRB would handle guidance for how to make best execution happen.

The SEC Chairman also said she supports rules that FINRA and MSRB are completing that would compel dealers to reveal more details about the compensation they receive for “riskless principal transactions.” This type of trade happens when dealers buy securities from customers and sell them right away to other dealers. Customers end up paying a mark-up for the trades that dealers don’t have to tell them is included.

The municipal bond market is currently very fragmented. There is no centralized exchange while there are tens of thousands of issuers.

At Shepherd Smith Edwards and Kantas, LTD LLP, our bond market fraud lawyers help investors to recoup their losses. Please contact our securities law firm today and ask for your free case consultation.

Bond Market Has $900 Billion Mom-and-Pop Problem When Rates Rise, Bloomberg, June 23, 2014

SEC's White calls for reforms in fixed income markets
, Reuters, June 20, 2014

Mary Jo White of S.E.C. Seeks to Make More Bond Market Data Available, New York Times, June 20, 2014

November 13, 2013

SROs at Work: MSRB Prioritizes Fiduciary Duty When Setting Up New Muni Advisor Regime & FINRA Puts Out Closed-End Funds Alert to Investors

MSRB Makes Defining Fiduciary Duty Central to Developing Municipal Advisor Regulatory System
Municipal Securities Rulemaking Board says that in coming up with a regulatory system for municipal advisors it’s number one priority is to get clear about the statutory fiduciary duty that these entities would owe to their local and state government clients. The MSRB’s board of directors has asked staff to create a rule proposal that would give guidance on the fiduciary obligation that municipalities have to municipal entities.

Following the release of the fiduciary duty proposal for comments, there also will be proposals about rules addressing possible pay-to-play activities in the industry, municipal advisory firms’ supervisory requirements, limits on gratuities and gifts to those who work for municipal securities issuers and other participants in the market, and solicitor duties. Along with the proposals, the MSRB plans to create a professional qualifications program geared for municipal advisors and perform outreach and education initiatives.

Per the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 975, municipal advisors must dually register with MSRB and the SEC. That section says that municipal advisers owe clients a federal fiduciary duty. Municipal advisors are comprised of a variety of professionals, including those who give advice to local and state governments about municipal bonds and those that solicit municipal bond business from issuers for others.

Market participants were critical of the Securities and Exchange Comission’s December 2010 proposal to put the provision into effect. The SEC’s final rules have since narrowed quite a bit as a result.

FINRA Alerts Investors About Closed-End Funds
In other SRO news, the Financial Industry Regulator Authority has put out an investor alert called Closed-End Fund Distributions: Where Is the Money Coming From? The notification is to help investors understand what this type of fund is before they get involved and how they are different from mutual funds. Closed-end funds are growing in popularity because of the high distribution rates they offer. That said, FINRA said it was important to know that the fund's distribution rate is not the same as its return.

The SRO said there are six questions you should ask before investing in these funds, including: Does it fit your investment goals? What is the fund’s investment strategy? How much of what you pay per share during an IPO will be invested? What are tax consequences? How is the distribution rate established? Are the shares trading at a premium/discount to NAV?

Our securities lawyers are here to help investor recoup their investment fraud losses. If you suspect that you were the victim of closed-end fund fraud, contact Shepherd, Smith, Edwards, and Kantas, LTD LLP today.

Fiduciary Duty Comes First for MSRB In Creating New Muni Advisor Regime, AlacraStore

Closed-End Fund Distributions: Where is the Money Coming From?, FINRA


More Blog Posts:
Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny, Stockbroker Fraud Blog, November 11, 2013

SEC Members Discuss Agency’s Core Mission, New Penalty Policy, and Private Offerings in the Wake of General Solicitation, Institutional Investor Securities Blog, November 12, 2013

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

April 10, 2012

Stockbroker Fraud Roundup: SEC Issues Alert for Broker-Dealers and Investors Over Municipal Bonds, Man Who Posed As Investment Adviser Pleads Guilty to Securities Fraud, and Citigroup Settles FINRA Claims of Excessive Markups/Markdowns

The SEC’s Office of Compliance Inspections and Examinations has put out an alert reminding broker-dealers about what their supervisory and due diligence duties are when it comes to underwriting municipal securities offerings. According to the examination staff, there are financial firms that are not maintaining enough written evidence to show that they are in compliance with their responsibilities as they related to supervision and due diligence. OCIE Director Carlo di Florio stressed how sufficient due diligence when determining the operational and financial condition of municipalities and states before selling their securities, is key to investor protection.

The SEC has also issued an Investor Bulletin to provide individual investors with key information about municipal bonds. Its Office of Investor Education and Advocacy wants to make sure investors know that the risks involved include:

Call risk: the possibility that an issuer will have to pay back a bond before it matures, which can occur if interest rates drop.

Credit risk: The chance that financial problems may result for the bond issuer, making it challenging or impossible to pay back principal and interest in full.

Interest rate risk: Should US interest rates go up, investors with a low fixed-rate municipal bond who try to sell the bond prior to maturity might lose money.

Inflation risk: Inflation can lower buying power, which can prove harmful for investors that are getting a fixed income rate.

Liquidity risk: In the event that an investor is unable to find an active market for the municipal bond, this could stop them from selling or buying when they want to or getting a certain bond price.

As a municipal bond buyer, an investor is lending money to the bond issuer (usually a state, city, county, or other government entity) in return for the promise of regular interest payments and the return of principal. The maturity date of a municipal bond, which is when the bond issuer would pay back the principal, might be years—especially for long-term bonds. Short-term bonds have a maturity date of one to three years.

In other stockbroker fraud news, Citigroup Inc. (C) subsidiary Citi International Financial Services LLC has agreed to pay almost $1.25 million in restitution and fines to settle claims by FINRA that it charged excessive markups and markdowns on corporate and agency bond transactions between July 2007 and September 2010. The SRO says that the markdowns and markups ranged from 2.73% to over 10% and were too much if you factor in the market’s condition during that time period, how much it actually cost to complete the transactions, and the services that the clients were actually provided. FINRA also claims Citi International failed to exercise “reasonable diligence” to ensure that clients were billed the most favorable price possible. To settle the SRO’s claims, Citi International will pay about $648,000 in restitution, plus interest, and a $600,000 fine.

Also, a man falsely claiming to be an investment advisor has pleaded guilty to securities fraud. Telson Okhio, president of the purported financial firm Ohio Group Holdings Inc., has pleaded guilty to wire fraud over a financial scam that defrauded one Hawaiian investor of about $1 million.

Okhio solicited $5 million from the investor while claiming that the money would be invested in the foreign currency exchange market using a $100 million trading platform. He said the investment was risk-free and would earn 200% during the first month. Okhio is accused of immediately taking $1 million of the investor’s money and placing the funds in his personal account. He faces up to 20 years behind bars.

Investor Bulletin: Municipal Bonds, SEC.gov

Individual Posing as Investment Advisor Pleads Guilty to Wire Fraud Charges, FBI, March 16, 2012

FINRA Fines Citi International Financial $600,000 and Orders Restitution of $648,000 for Excessive Markups and Markdowns, FINRA, March 19, 2012


More Blog Posts:
Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

CFTC Says RBC Took Part in Massive Trading Scam to Avail of Tax Benefits, Stockbroker Fraud Blog, April 4, 2012

Wirehouses Struggle to Retain Their Share of the High-Net-Worth-Market, Institutional Investor Securities Blog, April 6, 2012

Continue reading "Stockbroker Fraud Roundup: SEC Issues Alert for Broker-Dealers and Investors Over Municipal Bonds, Man Who Posed As Investment Adviser Pleads Guilty to Securities Fraud, and Citigroup Settles FINRA Claims of Excessive Markups/Markdowns" »

November 3, 2010

San Diego Officials Settle SEC Municipal Bond Charges for $80,000

Four ex- San Diego officials will pay $80,000 in fines to resolve municipal bond charges by the US Securities and Exchange Commission for allegedly misleading investors. Never before has the SEC obtained financial penalties against a city’s officials for municipal securities fraud. By agreeing to settle, ex-San Diego City Manager Michael Uberuaga, ex-Deputy City Manager for Finance Patricia Frazier, ex-Auditor and Comptroller Edward Ryan, and ex-City Treasurer Mary Vattimo are not denying or admitting to the charges. There are still charges pending against San Diego’s ex-Assistant Auditor and Comptroller Teresa Webster.

The SEC filed its securities fraud charges against the former city officials in 2008. The officials are accused of knowing that the city of San Diego had purposely underfunded its pension obligations to increase benefits will deferring costs. The SEC also contends that the ex- officials understood that without cuts to city services, employee benefits, or new revenues, it would be difficult to fund future retirement obligations. Yet the former officials allegedly did not let investors know about the serious funding problems and made false and misleading statements in 2002 and 2003.

Regulators contend that when San Diego sold over $260 million in bonds, city officials did not disclose that the pension deficit was expected to hit $2 billion in 2009. According to Rosalind Tyson, the director of the SEC’s Los Angeles Regional Office, municipal officials are obligated to make sure that investors get accurate and full information about the financial condition of an issuer.


Related Web Resources:
Ex-San Diego Officials Agree to Pay Fines to End SEC Pension Fraud Case, Bloomberg, October 27, 2010

Former San Diego Officials to Pay Penalties in SEC Municipal Bond Fraud Case, Asset International October 29, 2010

More Municipal Bond Blog Posts, Stockbrokerfraudblog.com

Continue reading "San Diego Officials Settle SEC Municipal Bond Charges for $80,000" »

January 21, 2009

SEC Rapped for Allegedly Failing to Fully Investigate Alleged Wrongdoings in the Municipal Securities Market

Congressman Spencer Bachus (R – Ala) says the Securities and Exchange Commission should have done more to probe alleged wrongdoings in the municipal securities market. Bachus issued a statement noting that the SEC knew as far back as 1997 of a potential “pay to play” scam involving water and sewer bonds in Jefferson County, Alabama, which is now facing the largest municipal bankruptcy in sewer bonds at $4 billion.

Bachus says that back then, Jefferson County Commissioner Bettye Fine Collins had sent the SEC a letter telling them about the municipal bond sales, but no follow up letter was sent to her. The congressman noted that it doesn’t appear to be an uncommon practice for the SEC to fail to use the tools to which it has access to investigation credible allegations.

Bachus said he resubmitted the original packet, along with information from 2007 to the SEC but nothing has been done to address his concerns. He also says that he provided SEC Chairman Christopher Cox with material about Jefferson County’s municipal bond indebtedness. The Commission responded by presenting a White Paper about municipal securities reform. Bacchus also noted new information has come to light indicating an “anti-trust collusion” involving investment advisers who inflated the fees that were “already outrageous.”

Jefferson County got into financial trouble when it changed from fixed rates to adjustable rates and refinanced its sewer bonds before becoming involved in complex interest rate swap agreements to hedge against higher rates. When the rates increased, Jefferson County found that it couldn’t refinance a return to fixed rates.

Last April, the SEC filed a lawsuit against Birmingham, Alabama Mayor Larry Langford, who formerly served as Jefferson County Commission president, for alleged improper payments involving the county’s bond business. While serving in the role of county president, Langford allegedly accepted over $156,000 in undisclosed benefits and cash from Blount Parris & Co. securities chairman William Blount. In exchange, Langford allegedly allowed Blount’s company to take part in all of Jefferson County’s security-based swap agreement transactions and municipal bond offerings and the firm earned over $6.7 million in fees.

Related Web Resources:
Jefferson County, Alabama

About Municipal Bonds, SIFMA

US Representative Spencer Bachus

US Securities and Exchange Commission

Continue reading "SEC Rapped for Allegedly Failing to Fully Investigate Alleged Wrongdoings in the Municipal Securities Market" »

December 18, 2007

JP Morgan Will Pay $500,000 to Settle Municipal Securities SRO Claim

JP Morgan Securities Inc. says it will pay $500,000 to settle charges that it failed to disclose to regulators that it used and paid consultants to acquire a number of municipal securities offerings.

The settlement agreement was announced by the Financial Regulatory Authority (FINRA), which is in charge of enforcing the Municipal Securities Rulemaking Board (MSRB) rules and any violations. According to MSRB regulations, firms must disclose any payments to consultants for municipal securities offerings.

FINRA says that JP Morgan actually stated in its MSRB filing that it did not use or pay any consultants to make any municipal securities-related transactions. In fact, from January 22 through June 2004, JP Morgan actually used consultants extensively in connection to its municipal bond business, paying some 40 consultants $7.1 million in total.

Yet 10 of JP Morgan’s quarterly disclosures to MSRB stated that consultants “obtained or retained” zero business. JP Morgan also denied paying consultants for municipal securities-related business even though it made at least six payments worth $750,000 in total to at least 16 consultants for at least 70 municipal securities offerings.

JP Morgan is not denying or admitting to the charges by agreeing to the $500,000 fine.

If you are the victim of broker misconduct, you should speak with a stockbroker fraud lawyer right away. An experienced attorney can help you recover your lost investment. Contact Shepherd Smith and Edwards today.


Related Web Resources:

FINRA Fines J. P. Morgan Securities $500,000 for Failing to Disclose Use of Payments to Consultants to Obtain Numerous Municipal Securities Offerings, FINRA, December 13, 2007

Municipal Securities Rulemaking Board