UBS Loses FINRA Arbitration Involving Puerto Rico Closed-End Fund (CEF)

by Gray on June 11, 2015

in Uncategorized

A FINRA arbitration panel awarded $1 million to an investor whose portfolio was over-concentrated in UBS Puerto Rico closed-end bond funds. The 66 year-old conservative investor reportedly “lost $737,000 of his nearly $1 million portfolio when the value of UBS’ Puerto Rico municipal bond funds collapsed in the fall of 2013.”

15.6.11 puerto rico flag map

When the client expressed his concern about his declining account, he was told “even a skinny cow could give milk.” The arbitration panel wrote that the investor’s portfolio was “clearly unsuitable” and provided a lengthy explanation for their award, which pointed the finger at UBS’s sales practices and alleged that brokers were under pressure to sell the closed-end funds and keep clients in them. The arbitration panel wrote that “Claimant’s lifetime pattern has been one of frugality, saving and employment of resulting capital and his own labor in business opportunities that he understands can earn a good return.”

UBS was ordered to pay $400,000 to buy back the investor’s portfolio and pay $600,000 in compensatory damages. The investor’s request for $1 million in punitive damages was reportedly denied by the arbitration panel. The FINRA award is accessible here ubs puerto rico.

Many investors report that UBS and other brokerage firms in Puerto Rico sold these funds to investors as safe fixed-income investments. Of course, they have proved to be anything but safe, and many investors have lost much or even all of their retirement savings.  Adding more danger, many investors who needed to withdraw money from their accounts for personal reasons (such as to purchase a home or fund a child’s education) have reportedly been advised to borrow money from UBS and other brokerage firms instead of selling shares in UBS Puerto Rico funds. This was very dangerous advice, because if the funds lost value, the investor’s losses would be even greater than they otherwise would have been due to the borrowings. Now that the funds have lost value, some investors have lost almost all of their investments, or even ended up owing the brokerage firms money!

Many advisors told investors that the UBS closed-ends were safe because they were invested in safe bonds backed by the government. But Puerto Rico municipal bonds have been anything but secure of late. Since 2000, the Commonwealth has experienced an imbalance between recurring government revenues and total expenditures. In 2009, the deficit reached a record $3.306 billion. Further, as of June 2010, the unfunded public employees’ retirement accounts reportedly had an actuarial shortfall totaling approximately $25 billion. As a result of these poor fundamentals, investors are concerned about the creditworthiness of the Puerto Rico government and as a result the prices of some Puerto Rico government bonds have dropped. UBS closed-end funds have lost significant value due to their leveraged exposure to the underlying municipal bonds as well as selling pressure in the market for the funds. Shares that steadily paid dividends and appeared to maintain their value for several years have suddenly collapsed in value by 50% or more. Some investors who borrowed money from credit lines offered by brokerage firms have reportedly received margin calls and even had their UBS Puerto Rico fund shares liquidated.

Which Funds Are Affected?: Clients who invested in the following funds may wish to consider attempting to recover their losses through the FINRA arbitration process: Tax-Free Puerto Rico Fund, Tax-Free Puerto Rico Fund II, Tax-Free Puerto Rico Target Maturity Fund, Puerto Rico AAA Portfolio Target Maturity Fund, Inc., Puerto Rico AAA Portfolio Bond Fund, Puerto Rico AAA Portfolio Bond Fund II, Puerto Rico GNMA & U.S. Government Target Maturity Fund, Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, Puerto Rico Fixed Income Fund, Puerto Rico Fixed Income Fund II, Puerto Rico Fixed Income Fund III, Puerto Rico Fixed Income Fund IV, Puerto Rico Fixed Income Fund V, Puerto Rico Fixed Income Fund VI, Puerto Rico Short Term Investment Fund, Multi-Select Securities Puerto Rico Fund, UBS IRA Select Growth & Income Puerto Rico Fund, Puerto Rico Investors Family of Funds, Puerto Rico Investors Tax-Free Fund, Puerto Rico Investors Tax-Free Fund II, Puerto Rico Investors Tax-Free Fund III, Puerto Rico Investors Tax-Free Fund IV, Puerto Rico Investors Tax-Free Fund V, Puerto Rico Investors Tax-Free Fund VI, Puerto Rico Tax-Free Target Maturity Fund, Puerto Rico Tax-Free Target Maturity Fund II, Inc., Puerto Rico Investors Bond Fund I.

Attorneys are available to review possible cases involving UBS Puerto Rico closed-end funds. Investors who were not told the truth about these funds may have a claim against UBS or the firm that sold them the funds. In addition, investors who could not afford to take the risk of losing money in these funds may also have claims. Investors may fill out the form on this page to arrange to discuss their possible case. Investors may also contact the Christopher Gray firm in New York at (866) 966-9598 or newcases@investorlawyers.net for a confidential, no-obligation consultation.

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