UBS Did Not Fully Disclose the Risks Involved in Puerto Rico Bond Funds to Investors and Brokers, Reports CNBC

According to a recent CNBC investigation, not only did UBS Puerto Rico (UBS-PR) fail to disclose to investors the risks involved in the bond funds UBS pushed on the island’s residents, but also the brokerage firm neglected to fully apprise its own brokers of the incredible risks. While these findings are not new, the CNBC probe digs deeper into the matter.

The majority of these investors were island locals, who have now also been further devastated as a result of Hurricane Maria. Already, UBS has come under fire and paid hundreds of millions of dollars in securities settlements and awards from FINRA arbitration panels over losses investors sustained when these investments failed dramatically more than four years ago. UBS also has settled with regulators, including the U.S. Securities and Exchange Commission and FINRA, and paid over $60 million for its wrongful conduct and abuse of investors. The firm did not, however, deny or admit to wrongdoing.

UBS Executives Purportedly Knew Puerto Rico Bonds Would Fail
CNBC’s investigative team obtained approximately “2,000 pages of confidential documents” that display conversations and the “inner workings” between UBS executives in Puerto Rico and the U.S. mainland prior to the funds’ collapse. According to the documents, as far back as a year before the Puerto Rico funds failed, UBS management already knew that problems were brewing and they discussed what could happen if the firm did not deal with these issues immediately.

However, the documents, according to CNBC, show that UBS sought to hide these concerns from investors. For example, firm executives purportedly tried to keep results of stress-tests from their own advisors and failed to take fund documents that were written in English and translate them into Spanish.

Even after some UBS brokers voiced worries about the UBS bond funds, firm management reportedly told them to keep selling to investors and ignore the funds’ problems. Among the concerns cited by brokers—22 concerns in total—were those involving “price instability,” “churning,” “geographic concentration,” and “excessive supply.” Still, UBS Puerto Rico Chairman Miguel Ferrer pressed brokers to concentrate on the attractive features of the funds and continue selling them—either that or go look for employment elsewhere. The selling points Ferrer touted were “diversification” and an “over 7 1/2 percent” yield. He ordered the brokers to tell clients that the Puerto Rico bond funds were not necessarily tied to the island’s “fiscal situation.”

Puerto Rico investors were told that their money was safe in the island’s bonds and UBS’s bond funds and that they would earn higher interest from these investments than they would from other investments—not to mention that investing in Puerto Rico bonds and closed-end bond funds would be tax-free. Then, when these securities plunged in value in 2013, many investors were reportedly advised not to sell and told that the market would recover. This has not happened.

Responding to CNBC’s investigation, a UBS spokesperson noted that multiple disclosures were provided that noted “in plain language” the risks involved with Puerto Rico closed-end funds, including leverage and possible illiquidity, as well as that high concentration in Puerto Rico securities made these funds vulnerable to fluctuations in the island’s economy.

UBS Puerto Rico Bond Fraud Lawyers
With Puerto Rico now in bankruptcy-like proceedings, not to mention in the wake of the destruction and devastation left behind by Hurricane Maria, the island’s financial recovery is likely to take even longer. At Shepherd Smith Edwards and Kantas, our Puerto Rico bond and bond fund lawyers are here to help.

We have worked with investors on the island and the mainland since the Puerto Rico securities began to fail four years ago, and we have successfully pursued claims on clients’ behalf through FINRA arbitration and other avenues. Contact our UBS Puerto Rico bond fraud law firm today so that we can help you explore your legal options if you are an investor that suffered losses from investing in Puerto Rico securities that were recommended to you by a financial advisor, including brokers from Santander Securities (SAN), UBS, Popular Securities, Oriental Securities, or another brokerage firm.

More Blog Posts:
Hedge Funds Get Rid of Puerto Rico General Obligation Bonds After Hurricane Maria, Stockbroker Fraud Blog, November 22, 2017

After Hurricane Maria, Mutual Fund Company Franklin Resources Sells Hundreds of Millions of Dollars of Puerto Rico Bonds, Stockbroker Fraud Blog, October 27, 2017

Ameriprise Ordered to Pay $8M Over F-Squared Alpha Sector Strategy Sales, Institutional Investor Securities Blog, November 8, 2017