The Securities Arbitration Law Firm of KlaymanToskes announced today that it is continuing to investigate UBS Puerto Rico in connection with the sale of Puerto Rico Bond Funds. These funds include the following:
With the downturn in the Puerto Rican economy, the value of these funds have declined significantly. Weakness in municipal markets across the United States and Puerto Rico and fear surrounding the direction of interest rates have led to significant declines in Puerto Rico municipal bond and closed-end fund prices, as well as a lack of liquidity for these products. A number of UBS customer accounts were over-concentrated in these funds and as a result they have incurred substantial losses. To make matters worse, in addition to purchasing these funds, some UBS customers were encouraged to buy more of these securities on lines of credit in violation of the brokerage firm’s policy. Additionally, many clients took out margin loans to buy into these funds. UBS has since announced that it put a financial advisor in Puerto Rico on administrative leave while the firm reviews loans that were issued to clients. With many of the bond funds already highly leveraged themselves, in some cases as high as 53%, losses can be exasperated when the value of the funds decline. Now, many UBS clients have been forced to liquidate hundreds of millions of dollars in holdings in these funds after incurring margin calls. Because the funds were already leveraged, it was unsuitable for investors to purchase these securities through the use of margin loans or lines of credit.
In May of 2012, the U.S. Securities & Exchange Commission (“SEC”) charged UBS Puerto Rico and two of its executives with “making misleading statements to investors, concealing a liquidity crisis, and masking its control of the secondary market for 23 proprietary closed-end mutual funds.” The SEC also stated that in 2008, UBS PR promoted the closed-end funds’ “extraordinary ‘market returns’ and low risk and volatility, but failed to disclose that share prices and liquidity were increasingly dependent on UBS PR’s support of the [closed-end funds’] secondary market.” During 2008 alone, UBS PR’s non-exchange traded closed-end fund business produced $94.5 million in revenue for the firm. While UBS PR paid $26.6 million to settle the SEC’s charges, UBS PR has agreed that “in any Related Investor Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of compensatory damages by the amount of any part of [UBS’] payment of a civil penalty in this action.”
As a result of the recent losses in the UBS Puerto Rico bond funds, securities arbitration claims have already begun to be filed with FIRNA’s arbitration department to recover losses on behalf of Puerto Rico bond fund investors. A flood of cases is expected to be filed as a result of the alleged wrongful conduct of UBS Puerto Rico. Due to the binding arbitration clause contained in the customer agreement that accompanies the new account forms presented by UBS Puerto Rico to their customers, investors who have sustained losses in the Puerto Rico bond funds are required to file a claim with FINRA in order to attempt to recover their investment losses.
For more information on how to start a claim, or to find out if you have a claim, please contact KlaymanToskes, toll free, at 1-888-997-9956, for a free consultation.