UBS Fights Insurers’ $20 Million Lawsuit Over Puerto Rico Bond Claims

In an effort to fight a $20 million coverage lawsuit brought by insurance carriers over Puerto Rico bond fraud cases, UBS Financial Services, Inc. (UBS) argued in court that the exclusions at issue cannot be applied to these investors’ claims. The plaintiffs in the case include XL Specialty Insurance Co., Hartford Fire, and Axis.

According to Law360, a Securities and Exchange Commission filing notes that as of last year UBS is contending with $1.9 billion in claims – including civil, arbitration, and regulatory cases – over its Puerto Rico closed-end bond funds, and to date has already paid $740 million to resolve some of those claims. The bank has come under fire for the way it handled $10 billion of these closed-end bond funds, including claims that they pushed the securities onto investors who could not handle the risks involved and, in some cases, encouraged them to borrow funds to buy even more.

The bank wants coverage under new subsidiary policies that the insurers agreed to even though it includes a specific exclusion for claims that involve the closed-end fund debacle in any way. In its opposite brief, submitted to Puerto Rico federal court, UBS argued that the plaintiffs have not made much of an effort to argue how the exclusion could preclude every related claim, of which there are more than 1600. UBS noted in its brief that insurance law in the U.S. territory mandates that an insurance company defend the whole action even if just one claim is potentially covered.

Meantime, the insurance companies continue to maintain that the matters at hand are within the specific litigation exclusion because they come from the same situations that resulted in the Puerto Rico closed-end fund actions that were brought prior to the new policies going into effect.

UBS Puerto Rico Bond Fraud
UBS was an underwriter for many of these high-risk Puerto Rico bonds. The investors included the nation’s wealthy, retirees, small business owners, sophisticated investors, and unsophisticated investors. Many suffered catastrophic losses four years ago when the market for these Puerto Rico bonds began to fail, which is why our securities fraud law firm has been working with clients in the U.S. mainland and on the island to help them attempt to recoup their losses.

Law to Restructure GDB & Help Local Creditors Recover Some of Their Money
A few months ago, Puerto Rico filed for bankruptcy protection and is in the process of working out how to restructure its over $70 billion of debt that it still owes creditors. For example, the island’s Governor, Ricardo Rosselló, recently enacted legislation to restructure its Government Development Bank that is supposed to allow local bondholders, municipalities, cooperatives and other creditors to get back part of their investment.

The law would set up a new trust in which the liquid assets of the bank would be deposited. The trust would pay for three new kinds of bonds that would be used to restructure the Government Development Bank’s debt. Meantime, creditors would trade their debt for the new bonds.

Puerto Rico Bond Fraud Lawyers
For now, the UBS Puerto Rico bond fraud cases keep coming as investors learn more and more about the difficult situation that they are in because of the brokerage firms on the island. Please contact Shepherd Smith Edwards and Kantas to ask to speak with one of our Puerto Rico bond fraud attorneys. We also handle similar claims brought by investors against Santander Securities (SAN), Popular Securities, Morgan Stanley (MS), Oriental Securities, and other brokerage firms. Contact one of our UBS Puerto Rico bond fraud attorneys today.

UBS Says Exclusions Don’t Bar Puerto Rico Bond Defense, Law360, August 28, 2017

Governor enacts law to restructure Puerto Rico Government Development Bank, CarribbeanBusiness, August 25, 2017