Municipal Bonds

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

Published on: April 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.

Former UBS Puerto Rico Employees Brought $25M Lawsuit Against the Firm

Published on: April 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

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.

SEC Cases: Litigation Marketing Company Accused of Defrauding Retirees, NY Town Officials Hide Money Problems from Municipal Bond Investors, and Ski Resort is Tied to Fraudulent E-B Five Offerings

Published on: April 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Elder Financial Fraud: LA Based-Company Accused of Bilking Retirees and Others
The Securities and Exchange Commission is charging PLCMGMT LLC, also known as Prometheus Law or PLC, and co-founders David Aldrich and James Catipay of bilking retirees and other investors. The two men are accused of raising $11.7M by telling investors that their money would go toward bringing together plaintiffs for class action cases and other lawsuits. Investors were promised substantial returns of 100% to 300% from any settlements. PLC is a litigation marketing company based in Los Angeles.

The SEC contends that only $4.3M of the money was used to find prospective plaintiffs and not much revenue was made from any settlements reached. Instead, Aldrich and Catipay took $5.6M to cover their own expenses. The two men downplayed the risks involved and did not disclose that their business model was “unrealistic.” Instead, PLC and its founders claimed that investments were secure and guaranteed when they were actually very speculative and high risk, especially as not all potential plaintiffs typically qualify to become actual plaintiffs. Compound this factor with the reality that winning any lawsuit is never a guarantee.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to help older investors recoup their losses.

Officials of Ramapo, NY Accused of Hiding Financial Woes from Muni Bond Investors
The SEC is accusing the New York town of Ramapo, its local development corporation, and four town officials of fraud. The Commission claims that the officials committed fraud to hide the financial stress caused by the $60M spent on constructing a baseball stadium, as well as the decline in sales and property tax revenues. The four individuals allegedly cooked the books of Ramapo’s main operating fund to make it seem as if it held positive balances of up to $4.2 million over a six-year period when actually the balance deficit at one point reached close to $14M.

The regulator said that since the town guaranteed the stadium bonds that Ramapo Local Development Corp. (RLDC) had issued, an operating revenue shortfall at the corporation was concealed and investors were not apprised that the town would likely have to subsidize bond payments, which would cause the general fund to lose even more money.

Hedge Funds Sue Puerto Rico’s Government Development Bank Over Assets

Published on: April 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Problems continue to plague Puerto Rico as its financial situation continues to deteriorate. Just recently, as things have worsened for the U.S. territory, a number of hedge funds have asked the United States District Court in San Juan, Puerto Rico to freeze the assets of the Commonwealth’s Government Development Bank (“GDB”). The hedge funds, who are large owners of Puerto Rican debt, are accusing the bank of insolvency and spending its remaining money to help support other sectors of the island’s beleaguered government.

The plaintiffs in the case include Claren Road Asset Management and Brigade Capital Management. The hedge funds reportedly hold about $3.75 billion of the bank’s debt.

In their lawsuit, the hedge funds said that the GDB has not provided the financial data that creditors have requested. They want the Court to prohibit additional cash transfers except for those that are necessary. The hedge funds do not want public entities, municipalities, and other depositors to be able to take their money out.

The plaintiffs expressed concern that should the GDB run out of funds, a lot of essential services may have to stop and creditors would sustain significant losses. The GDB has a debt payment due on May 1 of about $422 million. In response to the hedge funds’ case, GDB President Melba Acosta-Febo claimed that the accusations made in the complaint are “erroneous” and allegations that the GDB knowingly kept back financial information in order to preference deposits over bondholders are “wholly false.”

The hedge funds believe that GDB kept giving loans even while knowing these loans would likely not be repaid.

UBS Ordered to Pay Investors Over $47K in Puerto Rico Bond Fraud Case

Published on: March 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

UBS Group AG (UBS) must pay Obdulio Melendez Ramos, Carlos L. Merced, and Ramon Velez Garcia over $470K for losses they sustained from investing in Puerto Rico bonds/bond funds that lost value. The three men filed their case with the Financial Industry Regulatory Authority. They contend their accounts were over-concentrated in risky Puerto Rico bonds/bond funds. Ramos, Garcia, and Merced had alleged negligent supervision and fraud.

Addressing the panel’s ruling, a spokesperson for UBS called the decision “disappointing” and said that he disagreed with the outcome. In an emailed statement, Gregg Rosenberg contended that that there were specific circumstances involved with this case and its outcome was not a indicative of how other arbitrators might rule in similar cases. However, according to a recent supplement for the firm’s fourth quarter earnings results, since August 2013 drops in Puerto Rico municipal bond prices, as well as in the prices of related proprietary funds UBS manages and distributes, have led to customer complaints, regulatory inquiries, and arbitrations filed against the firm.

Claimed damages against UBS are estimated to total $1.5B. The vast majority of those claims are still outstanding.

Many investors have accused UBS Puerto Rico of inappropriately persuading them to invest in the island’s municipal bonds even though these investments were not appropriate for them. UBS brokers even purportedly encouraged some investors to borrow so that they could become more heavily invested in the bonds. When Puerto Rico bond prices plunged, it was the investors, many of whom were retirees, that suffered.

SEC Charges Wells Fargo Securities, Rhode Island Agency with Bilking Investors Over Municipal Bond Offering

Published on: March 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange omission has filed charge against Wells Fargo Securities (WFC) and the Rhode Island Economic Development Corp. accusing them of fraud in a municipal bond offering. According to the regulator, RIEDC, now called Rhode Island Commerce Corporation, used $75M in bonds to finance 38 Studios, which is a startup video game company. Wells Fargo served as the bond underwriter.

The SEC is charging RIEDC and Wells Fargo with Securities Act of 1933 violations. Wells Fargo is also charged with violating the Securities Exchange Act of 1934 and the Municipal Securitas Rulemaking Board’s Rules G-17 and G-32.

The 38 Studios project was part of a state government program to increase economic development and employment opportunities through the lending of bond proceeds to private companies. The regulator said the RIEDC lent $50M in bond proceeds to the video game company, while the remaining proceeds went toward bond offering-related costs and the setting up of a reserve fund and a capitalized interest fund. The loan and investors were to be paid back through revenues made by video games that 38 Studios intended to make.

UBS Group Must Pay Investor $1.45M For Puerto Rico Bonds

Published on: February 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Pursuant to a recent arbitration ruling, UBS Group AG (UBS) must pay $1.45 million to Christel Marie Bengoa Lopez for losses she sustained in Puerto Rico closed-end bond funds. According to her arbitration claim, filed with the Financial Industry Regulatory Authority (“FINRA”), Bengoa Lopez invested a $5 million gift from her father after he sold his business.

Her broker at UBS purportedly touted the Puerto Rico closed-end bond funds as conservative, safe investments. She claims that he recommended that she use a credit line issued by UBS that would utilize her investments as collateral to purchase an apartment. However, when the closed-end bond funds became worth less than the balance of the loan, the brokerage firm insisted that it be paid back in full.

Commenting on the arbitrator’s ruling, UBS noted that it disagreed with the case outcome.

Unfortunately, numerous investors have lost substantial amounts of money from investing in Puerto Rico funds, many of which were sold by UBS. These funds were concentrated in the U.S. territory’s debt. When some funds lost half or more for their value in 2013, investors realized that the Puerto Rico investments were not as safe as represented. In fact, some investors lost everything.

Brokers from UBS, Banco Santander (SAN), Banco Popular, and other brokerage firms on the island are accused of steering investors toward Puerto Rico closed-end bond funds and individual Puerto Rico bonds even though Puerto Rico debt was not the best investment match for investors in terms of the latter’s goals and the degree of risk their portfolios could handle. Since 2013, Puerto Rico has been struggling to pay back $70 billion in debt-held not just by hedge funds and other institutional creditors but also by middle class Puerto Ricans, who hold about 30%, reports CNN, and other average Americans, who hold about 15%.
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Bondholder Group with $17.3B in Puerto Rico Debt Proposes Debt Restructuring Plan

Published on: February 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Puerto Rico Sales Tax Financing Corporation (COFINA) has submitted a plan to restructure the financially beleaguered island’s debt. COFINA, which is comprised of investors who possess debt backed by sales-tax revenues, has issued $17.3 billion in Puerto Rico debt-$7.5 billion in senior debt and $9.7 billion in second lien debt.

COFINA’s proposal is in response to another plan submitted by the island’s development bank earlier this month. With its proposed plan, COFINA is asking Puerto Rico to suspend repayments to members of the bondholder group until 2018, when payments would steadily grow to at least $600 million by 2021.

In exchange for the delayed payment, the bondholders are asking for the preservation of the notes’ tax-backed guarantee. Already, COFINA’s payments due this fiscal year have been put aside with its bond trustee.

The bondholder’s group includes creditors such as Whitebox Advisors, Metropolitan Life Insurance and Golden Tree Asset Management. The bondholder group believes that delaying repayments for two years should give the island time to recover financially.

Morgan Stanley Pays Widow Over $95K for Puerto Rico Securities Losses

Published on: January 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration Panel has ordered brokerage firm Morgan Stanley to pay Morrisa Schiffman (Schiffman) $95,632 for the losses she sustained from investing in Puerto Rico securities. Schiffman, who is a widow from New Jersey, had been using the income from the Puerto Rico investments to supplement her retirement. She accused the firm of making unsuitable recommendations and engaging in negligent supervision and disclose failures.

Bloomberg reports this is one of the first cases involving an investor in the U.S mainland seeking financial recovery related to the Commonwealth’s debt. More than 1,300 FINRA arbitration cases have already been filed in Puerto Rico for residents of the island who sustained heavy losses when Puerto Rico bonds began their fall in 2013.

Puerto Rico bonds were a big draw for investors in and out of Puerto Rico for a number of years because the securities are tax-exempt in the U.S. However, since these bonds dramatically declined in value nearly three years ago, investors have come forward to file arbitration claims against brokerage firms who recommended the bonds to them.

Our securities firm’s analysis has shown that, despite their tax advantages, most Puerto Rico bonds were not suitable for many customers’ investment goals or their portfolios. Brokers should have steered customers away from the Puerto Rico securities instead of toward them. Because of their negligence, there are investors who have lost all of their money in these bonds.

Firms named in recent Puerto Rico muni bond fraud cases include UBS Financial Services Incorporated of Puerto Rico (UBS), Banco Santander, Banco Popular, Stifel Nicolaus & Co. (SF), Bank of America’s (BA) Merrill Lynch, and others.

Puerto Rico owes $70 billion in debt. The Commonwealth recently defaulted on $37 million of payments that were due to certain creditors so that it could pay more of the general obligation debt that the island owes.

Insurers Ambac Assurance Corporation (AMBAC), Financial Guaranty Insurance Company (FGIC), and Assured Guaranty Corp. (Assured) are now suing the territory over the default, for which they’ve had to pay millions of dollars on claims.
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FGIC Sues Puerto Rico Over Bond Payment Default

Published on: January 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A third bond insurer is now suing Puerto Rico over the way its government officials diverted tax money to fulfill certain bond payments that were due while defaulting on other payments. The latest plaintiff is Financial Guaranty Insurance Company (FGIC). Its complaint has been consolidated with a lawsuit brought by Ambac Assurance Corporation (Ambac) and Assured Guaranty Corp. (Assured) that makes similar allegations.

FGIC contends that government officials violated the U.S. Constitution when they diverted over $164 million to pay off some of the Commonwealth’s general obligation debt. As a result of the diversion, Puerto Rico defaulted on $37 million in interest on bonds and FGIC says that because of this it had to pay over $6 million in claims.

The fund diversion lets the territory avoid default on general obligation bonds, which, under its own Constitution, are the priority in terms of making payments. However, according to the three insurance companies, the island expects to make about $9 billion in the fiscal year that ends in June and this goes beyond its debt-service costs. The insurance companies do not believe that money had to be redirected away from the government agencies.

Puerto Rico owes over $70 billion in debt. Recently, U.S. Treasury Secretary Jack Lew pressed Congress to pass legislation to help the beleaguered territory. Lew visited the island on Wednesday.
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