A Financial Industry Regulatory Authority (“FINRA”) panel is ordering UBS Financial Services, Inc. (“UBS”) to pay Puerto Rico residents over $700,000 in damages. The FINRA panel ordered UBS to pay $549,000 in compensatory damages to a defunct car rental business belonging to Luis Vega, as well as over $165,000 to Teresa Rosas, who is Vega’s former wife. The firm must also pay over $100,000 in costs and hearing session fees.
Vega and Rosas filed their case against UBS accusing the brokerage firm of securities fraud, negligence, recklessness, and deceit. Vega, 87, invested almost $8 million through his Condado Motors with UBS broker Jose Chaves between ’06 and ’11. During that time, Chaves invested approximately 95% of the money in three of UBS’s Puerto Rico close-end funds, even taking out loans to cover some of the costs. The couple’s lawyer claims that Chavez did not disclose any risks involved other than what was noted in the funds’ prospectus. Additionally, Rosas bought over 17,000 shares of the UBS Puerto Rico Fixed Income Fund III.
The couple saw their investments lose the bulk of their value when the prices for the Puerto Rico bonds and Puerto Rico closed-end funds dropped in 2013. According to their lawyer, Condado Motors lost $3.9 million in value, as well as $823,650 in net out-of-pocket losses, during 2013. The couple said that their financial problems played a part in their decision to get a divorce.
Now, the arbitration panel has found UBS liable for negligence because of the way it managed the couple’s investments. As part of the settlement, UBS will have to buy back all of Rosas’ shares at $9.70/share without reducing that price for sales expenses while paying damages to Condado Motors and expenses to all Claimants. Meantime, Chavez continues to work for UBS.
Hedge Funds and Mutual Funds Go to Court Over Puerto Rico Bond Repayments
Retail investors are not the only ones trying to get their money back from investing in Puerto Rico securities, even as the island struggles to recover from its $70 Billion of debt. Earlier this month, mutual funds controlled by OppenheimerFunds and Franklin Investments asked a federal judge to also make them defendants in a lawsuit brought by hedge funds that are holding Puerto Rico general obligation funds. Oppenheimer and Franklin hold not just $1.1 million in general obligation bonds but also $3.6 million in Cofina bonds. Cofinas are senior debt issued by the Puerto Rico Sales Tax Financing Corporation.
The general obligation bondholders that filed the complaint are hedge funds, including those managed by Aurelius Capital Management, Autonomy Capital, FCI Advisors, Covalent Partners, Stone Lion Capital partners, and Monarch Alternative Capital. In the meantime, another group of hedge funds—these ones are holding Cofinas—have asked a court to delay the general obligation bond holders’ lawsuit. These hedge funds include Merced Capital LP, GoldenTree Asset Management LP, Whitebox Advisors LLC, and Tilden Park Capital Management LP.
A temporary halt had been placed on litigation seeking debt repayment from Puerto Rico in an effort to give the US territory a breather as it seeks to restructure its finances. While the Cofina holders want the stay to remain in effect until February 2017—the reprieve is also meant to give the new control board appointed by U.S. President Barack Obama time to get a handle on the territory’s debt woes—the general obligation bond holders want the debt moratorium invalidated. They’ve pointed to Puerto Rico’s constitution, which is supposed to guarantee their bond payments.
Puerto Rico Bond Fraud Lawyers
For the last three years, our Puerto Rico municipal bond fraud law firm has been working with investors (both retail and institutional) in recouping losses they sustained from investing in Puerto Rico bonds and closed-end bond funds, which plunged in value in 2013. UBS Puerto Rico (“UBS-PR”), Banco Popular, Merrill Lynch and Banco Santander are some of the brokerage firms who persuaded investors to get involved in these investments. According to many of our clients, the firms and their brokers did not apprise them of all the risks involved.
Please contact Shepherd Smith Edwards and Kantas, LTD LLP today to request your free, no obligation case consultation.
Elderly clients win $700K Arbitration Against UBS, On Wall Street, November 29, 2016
Puerto Rico bondholder groups square off in court, Pensions & Investments, November 24, 2016