Over the last two years, more than 1,000 investors have sued UBS Puerto Rico (UBS-PR) in FINRA arbitration or other forums over mounting losses from the collapse of the Puerto Rico bond market. However, investors are not the only ones suing UBS-PR over its sale of risky bonds. Siblings Jorge and Teresa Bravo have sued UBS for $10 million in FINRA arbitration along with UBS-PR customers.
The Bravos, both ex-senior VPs at the brokerage firm, said management fooled not just customers but also UBS employees. They said they were coerced and threatened into selling Puerto Rico close-end bond funds and they were mistreated before being forced out.
Along with the Bravos, seven former UBS Puerto Rico employees have filed claims against UBS-PR seeking $25 million from their former employer. That group of former UBS-PR brokers claim UBS management made misleading statements to them, as well as customers, about the closed-end mutual funds. The brokers also said management pressured brokers at the firm to sell these Puerto Rico securities. News of the seven former brokers’ lawsuit broke last year around the time that Reuters disclosed the existence of a UBS letter noting that the collateral value of closed-end funds would be reduced to zero—an indication of their riskiness.
At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud lawyers have been working with investors to recoup their money. Too many investors lost much of the money they invested with UBS-PR and other brokerage firms on the island when these securities began to fail three years ago. Our securities lawyers on the island and the U.S. mainland are representing clients who have FINRA arbitration claims.
Puerto Rico continues to be mired in $70 billion of debt and its efforts to file for Chapter 9 Bankruptcy protection have been thwarted by the U.S. Congress. Unlike U.S. states, Puerto Rico, which is a U.S. territory, cannot file for this protection. However, recently, the U.S. Congress put out a draft bill that would give the Commonwealth access to court-supervised restructuring. The restructuring, however, comes with more onerous conditions imposed on bondholders than what they would have been subject to under a Chapter 9 bankruptcy.
Released by the House Committee on Natural Resources, the legislation, if approved, would give a federal board the right to get involved in Puerto Rico’s finances, supervise debt restructuring, and place bondholder lawsuits on temporary hold. However, a scheduled vote on the draft legislation was delayed to give more time for revisions.
According to Bloomberg, hedge funds and other investors in possession of about $5 billion of Puerto Rico general obligation debt want the revisions. Firms with $1.6 billion in sales tax-backed securities (commonly called COFINA bonds) do not want these changes.
While this is all developing, the May 1 deadline on $422 million of debt that Puerto Rico owes approaches. As it stands, it does not look likely that Congress’s bill will pass before that deadline. Following that deadline is the one on July 1 when $2 billion, including $805 million for general obligation bonds, is due. Until now, Puerto Rico has been able to pay its general obligation debt on time even if it has not been able to pay back other debt.
Contact our Puerto Rico municipal bond fraud lawyers today. Your initial case assessment is a free, no obligation consultation.
Bill to Ease Puerto Rico Debt Crisis Introduced in House, NY Times, April 12, 2016