Puerto Rico Bond Funds

UBS Financial Puerto Rico’s Chairman Told Brokers to Sell More Bond Funds in 2011

Published on: February 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Reuters is reporting that in 2011, before the prices of UBS Financial Services Inc. of Puerto Rico’s (UBS) proprietary bond funds dropped, the firm’s chairman, Miguel Ferrer, told brokers to either start selling more UBS Puerto Rico bond funds or find a new job. He spoke after the brokerage firm’s representatives began to express reservations about selling the bond funds to their customers because of, among other issues, the high risks that were involved.

According to Reuters, sources in the know said that when UBS asked their brokers about their reluctance to sell the funds, they gave Mr. Ferrer and UBS nearly two dozen reasons, including concerns with low liquidity, excessive leverage, instability, oversupply, and because of the concentration of Puerto Rican government debt, which UBS had underwritten.

UBS has come under fire not just for pushing its own funds to clients for whom they were not appropriate, but also for improperly directing some of them to borrow money from another UBS unit to purchase more fund shares. The Federal Bureau of Investigation, along with the Securities and Exchange Commission, are reportedly looking into the allegations.

Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services

Published on: January 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Plaintiffs in Puerto Rico who say they are the beneficiaries of a trust have filed a securities lawsuit against UBS Financial Services (UBS). The beneficiaries’ complaint asserts that UBS in Puerto Rico breached its duty to properly manage funds linked to UBS’s proprietary closed-end Puerto Rico bond funds.

The beneficiaries of Nellie Sánchez Carmona’s estate claim that the brokerage firm acted against their best interests when it opted to keep the trust invested in the proprietary funds-a move that earned UBS underwriting and management fees, along with commissions, and interest. The beneficiaries contend that UBS and its subsidiaries purposely prevented Sánchez Carmona from collecting benefits she was owed so that the firm could keep investing her money in the closed-end funds, which were issued by the firm, and continue to collect fees.

Also, according to the plaintiffs, for 10 years UBS prevented Sánchez Carmona from finding out that she was a beneficiary of the trust, which was set up by her husband Robert Hargen. Even though he passed away several years ago, UBS, in federal filings up to at least 2010, represented that Hargen was still alive and in possession of the trust.

UBS To Nominate Executive from BlueMountain Hedge Fund That Challenged Puerto Rico Law on Debt Restructuring to Its Board

Published on: December 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

UBS, AG (UBS) says that it intends to nominate BlueMountain Capital Management Executive Jes Staley to its board in May. Staley formerly served as a JPMorgan Chase & Co. (JPM) executive.

In a statement, UBS Chairman Axel Weber said that Staley is perfect for the role due to his professional expertise from working in global banking leadership roles for three decades. However, that may not be the only reason.

Earlier this year, BlueMountain, which is a New York-based hedge fund, joined a legal challenge against a law that would let some of the Commonwealth of Puerto Rico’s agencies restructure their massive debt. UBS Puerto Rico (UBS-PR) is one of the banks accused of inappropriately placing clients’ money into closed-end funds that had high exposure to Puerto Rico municipal bonds.

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed

Published on: November 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources

Published on: November 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to sources, an announcement is expected this week regarding the sale of UBS Puerto Rico’s (UBS-PR) mutual funds operations to BlackRock Asset Management (BLK). The move, say sources, is part of the Swiss giant’s strategy to exit the island.

To date, investors have filed nearly $1 billion in securities arbitration claims against UBS Puerto Rico alleging fraud and other wrongdoing in the sale of the funds. The broker-dealer recently consented to pay a fine of $5.2 million over fund improprieties. The settlement, reached with the Commonwealth’s Office of the Commissioner of Financial Institutions, included $1.7 million in restitution to 34 local low net-worth residents who had invested in Puerto Rico closed-end bond funds that were sold by UBS.

One investor was not happy with the settlement and some of the terms and individuals involved, which have not been disclosed. He is now suing the regulator. Last week, Martínez-Umpierre asked a local court to order the release of the confidential documents used to arrive at the settlement. He wants to find out how the 34 investors who will be getting restitution were chosen and how much they lost. Investors who have filed Financial Industry Regulatory Authority arbitration claims against UBS are not eligible for compensation either.

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds

Published on: November 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has sanctioned thirteen financial firms, including UBS Financial Services (UBS), Charles Schwab and Co. (SCHW), J.P. Morgan Securities (JPM), and Stifel Nicolaus & Co. (SF), for the improper sales of Puerto Rican junk bonds. A $100,00 minimum denomination had been established in junk bonds of $3.5 billion made by Puerto Rico several months ago. An SEC probe, however, revealed that there had been 66 instances when firms sold the bonds in transactions of under $100,000.

Municipal bond offerings are supposed to have a set minimum denomination that determines the smallest amount that a firm can sell to an investor during a single transaction. Typically, municipal issuers will establish high minimum denominations for junk bonds with a greater default risk. This is done to limit the bonds from ending up in the accounts of investors who may not be able to handle the risks.

The firms and their fines: UBS Financial Services for $56,400, Charles Schwab & Co. for $61,800, Oppenheimer & Co. (OPY) for $61,200, Wedbush Securities Inc. for $67,200, Hapoalim Securities USA for $54,000, TD Ameritrade (AMTD) for $100,800, Interactive Brokers LLC for $56,000, Stifel Nicolaus & Co. (SF) for $60,000, Investment Professionals Inc. for $67,800, Riedl First Securities Co. of Kansas for $130,000, J.P. Morgan Securities for $54,000, National Securities Corporation for $60,000, and Lebenthal & Co. for $54,000.

Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS

Published on: October 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In its third-quarter earnings reports this week, UBS noted that claims involving its Puerto Rico closed-end municipal bond funds are reaching close to $1 billion. That is a significant jump from the $600M mark those cases reached during the second quarter of this year, and this shows that the number of cases being filed against UBS continue to grow. According to multiple reports, the investors seeking almost $1 billion in losses are alleging unsuitability, fraud, and misrepresentation.

The third quarter has been a rough one for the Swiss banking giant. Reuters reports that the entity has put aside $1.9 billion for possible legal costs.

In the past year, UBS has been in the spotlight over claims that brokers in UBS’s Puerto Rico unit persuaded customers to get involved in the proprietary bond funds even if the funds were not suitable for the investors’ portfolios. Some clients reportedly were even encouraged to borrow so they could invest more.

UBS Brokers Are Still Selling Puerto Rico Muni Bonds

Published on: October 20, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Even after the slew of municipal bond fraud arbitration claims from investors blaming UBS AG (UBS) for their losses sustained in Puerto Rico municipal bonds, the brokerage firm has told its brokers to continue selling the funds to clients. However, notes the broker-dealer, representatives should make sure to evaluate their recommendations in a way that is in line with UBS policies and those of the Financial Industry Regulatory Authority.

The instructions to keep selling the bond funds were documented in a four-page, unsigned memo from UBS. The firm also instructed brokers to direct any questions about the suitability of any investment recommendations to the compliance department or a branch manager. According to Financial Adviser Magazine, a UBS spokesperson said that individual financial plans are customized to a client’s goals and wealth management needs. She also pointed out that Puerto Rico municipal bonds and closed-end funds had for over a decade rendered excellent returns and tax benefits.

Nevertheless, over the past twelve months, the losses from both Puerto Rico bonds and UBS’s closed-end bond funds tied to Puerto Rico debt have been huge. Already, UBS has been named in over 500 arbitration claims after there was a sharp drop in the value of Puerto Rico bonds last year. According to Reuters, FINRA intends to add another 800 arbitrators in Puerto Rico to hear these securities cases. Previously, there were about 70 arbitrators designated to preside over the muni bond fraud claims.

UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales

Published on: October 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Incorporated of Puerto Rico (UBS) has reached a settlement with the Commonwealth’s Office of the Commissioner of Financial Institutions (OCIF) over UBS’s offering and sale of closed-end mutual funds in Puerto Rico. As part of the agreement, UBS will pay a $3.5 million fine, as well as $1.7 million in restitution to 34 clients. As is typical with such settlements, UBS is not denying or admitting to any wrongdoing.

After examining UBS’s operations between the periods of 1/1/06 through 9/30/13, OCFI discovered that UBS had placed clients with conservative risk tolerances in high concentrations of Puerto Rico Closed-End Funds (PRCEF). OCIF further alleged that UBS recommended or allowed these clients to use “non-purpose” loans to buy more PRCEF, which should have never happened. OCFI also reported irregularities in the way some clients’ accounts were managed and said UBS had engaged in inadequate supervision and recordkeeping.

The clients that are entitled to restitution are primarily elderly investors with low net worth and conservative financial profiles. UBS is going to pay them almost $1.7 million in restitution. This offer has to be made within 45 days of the settlement’s execution. The $3.5 million penalty will go to the Securities Trading, Investor Education and Training Fund.

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds

Published on: August 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Even though UBS Wealth Management Americas (UBS) has been generating record revenue, the financial firm saw its profits drop upon reporting that had it put aside $44 million for litigation costs primarily related to Puerto Rico bond fraud cases. UBS’s second quarter earnings of $238 million are 3% lower than last year.

Already, UBS clients have filed hundreds of arbitration cases and a number of securities class action lawsuits contending that the brokerage firm put investors’ money in highly leveraged and unsuitable Puerto Rico municipal bond funds that dropped in value last year. These funds begun to lose value again recently.

OppenheimerFunds Inc. (OPY), which is the biggest mutual fund to hold Puerto Rico debt, has also taken a financial hit. Bloomberg reports that in the past year, the firm has seen a loss of close to a third of its funds’ assets. For example, the Oppenheimer Rochester Maryland Municipal Fund (ORMDX) directed approximately 35% of its holdings to the islands as of the end of June. As of August 4, its assets had dropped to $64.9 million. At this time last year, the fund had $96.1 million in assets.