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