Articles Posted in UBS

A federal judge has ruled that general obligation bondholders in Puerto Rico may go ahead with a securities fraud lawsuit arguing that the U.S. territory’s government has to pay them what they are owed even as it pays off other bondholders and workers and restructures its nearly $70 billion of debt. U.S. District Court Judge Francisco Besosa said the bondholders’ case could proceed despite a new law that has placed a stay on the majority of creditors’ legal actions brought against Puerto Rico.

Owners of general obligation bonds which includes individuals and hedge funds such as Monarch and Aurelius, are arguing that Puerto Rico general obligation bonds are supposed to be constitutionally guaranteed, therefore other Puerto Rico obligations cannot be paid before general obligation bondholders. Judge Besosa said that because the general obligation bondholders’ debt lawsuit does not seek to get any kind of payment from the territory or confiscate commonwealth property, the case should be exempted from the stay.

Following Judge Besosa’s ruling, creditors of COFINA bonds, Puerto Rico’s sales tax authority, are now asking a federal court to keep the island’s government from being told to redirect bond payments to the general bond holders. The COFINA plaintiff group, which includes funds holding more than $2 billion in debt and also hedge funds such as Canyon Capital and Goldentree, contend that the general obligation bondholders’ claims are “self-serving” and without merit.

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The Puerto Rico government has defaulted on more debt payments that were due to bondholders. The U.S. Territory did not meet the February 1, 2017 due date on $312 million in principal plus interest. The default includes Puerto Rico General Obligation bonds that are supposed to be constitutionally protected.

The Puerto Rican Government Development Bank owes $279 million of the defaulted debt. A spokesperson for Puerto Rico’s Aqueduct and Sewer Authority, however, said that the Commonwealth paid $295 million of interest, which was due on some of the debt.

Puerto Rico owes $70 billion of debt and the island has been embroiled in financial troubles for over three years. The territory has struggled to pay back the debt it owes, defaulting more than once on payments that were due. Last weekend, Puerto Rico’s federal oversight board voted to extend the stay placed on litigation against the island for debt payments that have been missed. The stay was supposed to lift on February 15, 2017. Now that date is May 1, 2017.

The island’s new governor, Ricardo Rosselló, was also granted an extension for when he has to turn in a fiscal blueprint, mapping out how Puerto Rico plans to restore its fiscal health. He now has until February 28, 2017.

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A few weeks after a FINRA arbitration panel ordered UBS (UBS) to pay $18 million in a Puerto Rico bond fraud case, the firm has been ordered to pay another customer a large amount in a similar municipal bond claim. In this latest ruling, the Gomez family claimed they lost $22.87 million from investing in Puerto Rico securities. UBS Puerto Rico (UBS-PR) brokers had purportedly suggested the Gomez family invest in Puerto Rico bonds despite the fact that they wanted investments that were safe. The family relied on the funds from their investments to cover their living expenses.

UBS argued that Mr. Gomez was an experienced investor. The firm claimed that when Gomez opted to concentrate his portfolio in Puerto Rico bonds, he knew what he was doing.

The FINRA panel disagreed with UBS’s assessment, awarding the Gomez family almost $20 million in cash and refusing to enforce almost $6 million is loans the Gomez family owed to UBS. The securities arbitration award to the Gomezes includes $4 million in punitive damages.

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UBS Financial Services (UBS) has terminated the employment of Connecticut broker Phil Fiore Jr. The broker-dealer says that even while Fiore was under heightened supervision he did not tell the firm about his outside business activities.

UBS contends that he violated firm policies, such as not disclosing that he was serving as an unpaid director for a not-for-profit entity affiliate, along with a client, as well as not obtaining internal approval to create blog posts, failing to obtain approval to run a charity golf tournament, and not disclosing that a new client had invested in his outside business.

Fiore, who was let go in November, had been a top UBS broker and was rated as a leading adviser in Connecticut. He’d worked at UBS since 2009 and was a senior VP. Previously, he’d been employed with Merrill Lynch.

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Even after more than three years since the Puerto Rico bonds and closed-end bond funds originally dropped in their initial value, many investors are still waiting to recoup losses they sustained from investing in these securities. Meantime, the U.S. territory continues to deal with its financial woes as it struggles to pay back its $70 billion of debt. At Shepherd Smith Edwards and Kantas, our Puerto Rico municipal bond fraud attorneys have worked hard this year in helping our clients, who are among the thousands of investors from the Commonwealth that suffered significant losses when the island’s securities plunged in value in 2013, in trying to recoup their money.

Below is a recap of some of the significant claims recovered for Puerto Rico investors this year that made the headlines:

A Financial Industry Regulatory Authority (FINRA) Arbitration panel ordered Morgan Stanley (MS) to pay a New Jersey widow over $95,000. Morrisa Schiffman accused the broker-dealer of making unsuitable recommendations to her, as well as of inadequate supervision and disclosure failures. Her FINRA Panel ultimately agreed.

Merrill Lynch was ordered to pay $780,000 in restitution to customers who invested in Puerto Rico closed-end bond funds and municipal bonds. FINRA found that the brokerage firm did not have the proper procedures and supervisory systems in place to ensure that all of the transactions were suitable for a number of these investors. Customers affected, in particular, are those with holdings that were heavily concentrated in Puerto Rico municipal bonds, as well as with holdings were highly leveraged via loan managed accounts or margin. FINRA said that from 1/2010 through 7/2013, 25 leveraged customers who had moderate or conservative investment objectives and modest net worths saw the securities they’d invested in sustain aggregate losses of nearly $1.2M. The customers had at least 75% of their assets in Puerto Rico securities that were ultimately liquidated to meet margin calls.

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A Financial Industry Regulatory Authority (FINRA) arbitration panel says that UBS Financial Services (UBS) must pay $18.6 million to customers Rafael Vizcarrondo and Mercedes Imbert De Jesus for their losses from investing in Puerto Rico closed-end bond funds.  The two investors, both UBS clients, accused the broker-dealer of breach of contract, breach of fiduciary duty, and other securities violations. They claim that UBS placed their money in unsuitable investments and did not properly supervise the broker who worked with them. As part of the award, Impert De Jesus and Vizcarrondo will receive $12.7 million in compensatory damages, $2.5 million of interest, $3.2 million in legal fees and $163,000 in expert witness fees.

Vizcarrondo is a prominent lawyer in Puerto Rico. His legal team said that UBS had attempted to portray him as a “sophisticated” investor, someone who should have known what he was getting involved in when he invested in the territory’s bonds.  The firm described Vizcarrondo as having been “fully informed” when he decided to concentrate his investments in UBS’s Puerto Rico closed-end funds. However, as Vizcarrondo’s attorney noted, not all professionals are “sophisticated investors.” Based on its decision, the FINRA arbitration panel obviously agreed with the claimant.

This is the largest FINRA arbitration award issued over Puerto Rico bond funds to date. There are over a thousand cases still pending. These claims were brought by investors seeking to recover the financial losses they suffered from investing in the island’s beleaguered securities. Although a number of firms, including Banco Santander (SAN), Banco Popular, Merrill Lynch and others have been named in Puerto Rico bond and closed-end bond fraud claims, UBS and affiliate UBS Financial Services Inc. of Puerto Rico (UBS-PR) have been the largest target of these claims. In fact, the TheStreet.com reports that on November 2, UBS AG, the parent company of UBS and UBS-PR, notified the U. S. Securities and Exchange Commission in a filing that about $1.9 billion in Puerto Rico municipal bond funds and closed-end fund claims have been brought against it. The firm has already paid out $740 million to claimants.

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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.

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A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered UBS Financial Services (UBS) to pay Ana Elisa Ciordia-Robles almost $1 million, including  $751,000 in compensatory damages and additional sums for legal fees and costs. Ciordia-Robles accused UBS of negligent supervision, breach of fiduciary duty, fraud, negligence, breach of contract, and violations of the Puerto Rico Uniform Securities Act, the Securities and Exchange Commission’s Rule 10b-5, and the Securities Exchange Act’s Sections 10(b). More specifically, Ciordia-Robles claimed she sustained losses from investing in UBS Puerto Rico (UBS-PR) closed-end bond funds.

When Puerto Rico muni bonds dropped in value in 2013, many investors on the island and in the mainland sustained huge investment losses. In the last few years, UBS and UBS-PR       have been the subject of thousands of customer complaints over their sale of Puerto Rico municipal bond and proprietary bond funds. Claimants are alleging that these investments were unsuitable, that high concentrations of these investments were recommended, and that UBS never apprised them of the risks involved in the closed-end bond funds that they were sold. Many of these investors have since realized that their portfolios were never equipped to handle these risks.

It was just last  year that UBS consented to pay about $34 million to US regulators to settle allegations related to its supervision of the sale of the Puerto Rico bond funds and use of leverage against those closed-end funds. UBS has already settled a number civil claims brought by investors through FINRA arbitration.  At Shepherd Smith Edwards and Kantas, LTD LLP our securities lawyers have been working hard to help quite a number of these investors  recoup these losses.

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Ex-UBS Broker is Accused of Inflating Customer’s Account 
The Financial Industry Regulatory Authority has barred Jeffrey Hamilton Howell from the broker-dealer industry. The former broker is accused of giving  a customer bogus weekly account statements that overvalued an account by up to $3M. The alleged misconduct is said to have occurred between 9/2008 and 11/2014.
According to FINRA, Howell sent the customer over 300 Stock Tracking Reports that misstated the client’s portfolio in amounts ranging from $289K to approximately $3M. He purportedly used his personal e-mail to send the customer some of the fake reports. This left UBS with records and books that were not accurate.

The Financial Industry Regulatory Authority announced that UBS Financial Services and its Puerto Rico subsidiary (UBS) must collectively pay three investors $750,000 in damages for losses they sustained from investing in UBS’s proprietary Puerto Rico closed-end bond funds and Puerto Rico bonds. The claimants are Jenny Robles Adorno, Desarrollos Jarra SE, and Jose A. Rivera.

The investors accused UBS of recklessness, fraud, and negligence. They sought compensatory damages, punitive damages, and reimbursement of commissions that they said were unlawful. In San Juan, the FINRA arbitration panel awarded Rivera $562,500, Robles $30,000 and Jarra $157,500. UBS said it was “disappointed” with the panel’s decision to award any damages to the claimants.

This is not the first Puerto Rico bond fraud arbitration case in which UBS has been ordered to pay investors. Just this March, the firm had to pay over $470,000 to three investors who said their accounts were over-concentrated in the same Puerto Rico focused investments. The claimants in that case alleged negligent supervision and fraud. Similarly, UBS was ordered to pay a former television executive over $1,400,000 in the fall of 2015 for over-concentrating the former customer in UBS’s proprietary funds and misrepresenting the risks of those investments.

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