UBS Financial Services Ordered to Pay Many Millions to Another Investor For Puerto Rico Bond And Closed-End Fund Losses

Once again, a Financial Industry Regulatory Authority (FINRA) panel has ordered UBS Financial Services (UBS) to pay a large arbitration award to an investor. Dr. Luis E. Cummings claimed losses related to his investing in Puerto Rico bonds and Puerto Rico closed-end funds. Cummings also said sustained losses from loans made against these securities.

In his Puerto Rico bond fraud case, Cummings accused UBS of negligence, recklessness, deceit, fraud, and fault. Meantime, the brokerage firm is once again claiming that this is yet another investor who was experienced enough to make a “fully informed decision” about whether to leverage investments and invest a healthy portion of his portfolio in Puerto Rico closed-end funds and bonds.

But as Shepherd Smith Edwards & Kantas Partner Sam Edwards said when commenting on a previous case in which UBS also was ordered to pay an investor over their similar losses, “even customers who are business savvy can be abused.” The FINRA Panel ultimately awarded Dr. Cummings more than $5 million in compensation as well as forgiveness of a similar amount of debt.

Mr. Edwards and Shepherd Smith Edwards & Kantas Partner Kirk Smith represent investors in the United States and Puerto Rico in their efforts to recover their Puerto Rico bond fraud and closed-end fund losses. Just last month, one of their clients, Luis R. Romero Lopez, was awarded almost $9 million in his Puerto Rico bond fraud case against UBS and UBS Puerto Rico (UBS-PR).

The award included $1 million in punitive damages because the broker-dealer gave Lopez multiple loans so he could purchase even more bonds. The arbitrators said that UBS demonstrated “extreme recklessness and indifference.” The arbitration award stated that Lopez lost more than he would have if only he had been “suitably invested with less leverage.”

The month before, UBS was ordered to the Gomez family $18 million for their Puerto Rico bond fraud losses. The investors accused UBS Puerto Rico brokers of recommending that they invest in these securities even though the family had stated that they wanted safe investments. Like Dr. Cummings, the FINRA Panel also refused to enforce loans UBS had given to the Gomez family. That ruling came just a few weeks after the broker-dealer was ordered to pay two other customers more than $18 million in December.

In all of these cases, UBS also claimed that these investors were experienced enough to understand the degree of risks involved in their investments. Clearly the FINRA panels believed otherwise.

To date, hundreds of similar cases have been settled and, of those which have not settled, investors have won the vast majority of them, including a handful of multi-million dollar awards.

In other Puerto Rico bond-related news, the US territory continues to be mired in $70 billion of debt and is struggling with its poor economy. Bond insurers who were spared when the island’s government reduced the Puerto Electric Power Authority’s $9 billion debt in December 2015 are now seeing their shares drop in the wake of debate about how much in losses they may be dealing with as the territory takes steps to cut its total debt.

Puerto Rico has until May 1, 2017 to settle with creditors, which is when the legal stay on creditor litigation expires. If a debt-restructuring plan that is mutually agreed upon is not reached on that date, creditors may proceed with lawsuits or the oversight board will be able to send the island into a restructuring process that is sanctioned by a court.

In a letter sent to creditors this week, the island’s financial oversight board announced that mediation between rival creditors is scheduled for April 10-13 in New York. The purpose of the gathering would be to resolve the conflict between creditors holding $18 billion of COFINA debt and creditors holding $17 billion of general obligation debt. Both groups claim they are legally entitled to payment of their debt.

Contact Shepherd Smith Edwards and Kantas, LTD LLP today and ask for your free case evaluation with an experienced Puerto Rico bond fraud attorney.

The FINRA Award in the Cummings Case (PDF)

FINRA Orders UBS to Pay Shepherd, Smith, Edwards & Kantas Client $9 Million Over Puerto Rico Municipal Bond and Fund Investment Losses, Stockbroker Fraud Blog, February 24, 2017

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