According to Reuters, internal correspondence records show that in 2012, a former branch manager at UBS Puerto Rico (UBS) warned the Swiss banking giant’s officials that its brokers were encouraging customers to get involved in improper loan practices. In a number of emails, Carlos Capacete, who was a branch manager at the time, wrote to at least two bank officers noting his suspicions of misconduct.
Reuters says that in the documents it reviewed, Capacete told regional manager Doel Garcia that he had encouraged Mariela Torres, a UBS Puerto Rico compliance director, to look into suspect loans. In another email, Capacete followed up with his inquiry to see if the loans had been investigated for possible misuse involving the bank’s credit lines.
Then, in yet another email, Capacete documented what he knew about the loans, which he believed were fraudulent, explained how he discovered the purported wrongdoing, and noted his efforts to notify Torres about the alleged misconduct. Capacete also wrote that a UBS attorney had told him that the firm had conducted an audit and found that his suspicions were wrong.
Despite this alleged audit, late last year UBS reached a $5.2 million municipal bond settlement with Puerto Rico’s Office of the Commissioner of Financial Institutions to resolve allegations of improper loan practices. The bank settled that case without denying or admitting to the charges. It did, however, consent to enhancing its supervision of several brokers whom regulators said may have steered clients toward improperly borrowing money to purchase more funds. UBS also terminated a broker for the same allegations and received an arbitration award of $2.5 million against it in an early case concerning the same broker.
In a recent earnings report, the bank reported that the U.S. Department of Justice has begun a criminal inquiry into whether certain customers, and at least one UBS financial adviser, used non-purpose loans to invest in UBS’s proprietary closed-end funds. Such conduct would have violated bank policies and loan agreements.
While borrowers can use securities from their brokerage account as collateral to cover certain matters via non-purpose loans, they cannot use the loans to invest in additional securities. Also, the use of debt to purchase additional securities may increase the financial risks for investors while potentially leading to cash flow issues for a bank in the event of big changes in the market.
Puerto Rico Municipal Bonds
Many retirees and other investors sustained devastating losses because they were given bad or inappropriate advice by brokers about investing in the Puerto Rico closed-end funds. To find out whether you have grounds for a case, contact our securities lawyers today and ask for your free, no obligation case consultation.
Our Puerto Rico bond and closed-end fund attorneys have been working with investors who purchased their securities from UBS, Banco Popular, and Banco Santander (SAN) to recoup their financial losses. Shepherd Smith Edwards and Kantas, LLP represents investors in Puerto Rico and the U.S. mainland.
UBS was warned of Puerto Rico loan practices, e-mails show, Reuters, August 4, 2015
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