Investors in Puerto Rico bonds – in particular, retail investors located in the U.S. Territory who invested in various proprietary closed-end funds (“CEFs”) structured and marketed by firms including UBS Puerto Rico, Santander Securities, and Popular Securities — have suffered massive losses since late 2013 when Puerto Rico’s bond prices witnessed significant deterioration following years of recession and ballooning municipal debt. Now, in the wake of Hurricane Maria, these huge losses are deepening as institutional investors with large Puerto Rico bond holdings seek to exit their positions.

As recently reported in the Wall Street Journal on October 25, 2017, Franklin Resources Inc. (NYSE: BEN), one of the largest creditors of Puerto Rico debt (the company sponsors approximately 200 mutual funds under the Franklin Templeton moniker) sold hundreds of millions of dollars of Puerto Rico debt in recent weeks. Franklin Resources and other large institutional investors, including hedge funds and Oppenheimer Holdings Inc. (NYSE: OPY), have collectively determined that holding Puerto Rico debt is untenable in light of the island’s anticipated debt restructuring (a process initiated in 2016) and, more recently, the massive devastation to Puerto Rico due to Hurricane Maria.

Before the hurricane hit Puerto Rico, its General Obligation (“GO”) Bonds maturing in 2035 were already trading at a significant discount to par, priced at around $0.60 on the dollar. Following Maria, these same GO bonds cratered even further, losing approximately 50% of their pre-hurricane value.

Investors in Puerto Rico bonds and Puerto Rico CEFs may have claims to be pursued in arbitration before the Financial Industry Regulatory Authority (“FINRA”). Numerous investors have filed claims against various brokerage firms and their associated members, alleging a range of securities violations including the recommendation of unsuitable investments in Puerto Rico bonds to uninformed investors, as well as the unsuitable and risky strategy pushed by a number of financial advisors to buy leveraged CEFs on margin (in effect, borrowing money to purchase shares in leveraged funds that employed margin internally to buy more Puerto Rico bonds).

The following non-exhaustive list of certain Puerto Rico CEFs have likely sustained considerable losses for investors:

• Puerto Rico Investors Tax-Free Fund, Inc.;
• Puerto Rico Investors Tax-Free Fund II, Inc.;
• Puerto Rico Investors Tax-Free Fund III, Inc.;
• Puerto Rico Investors Tax-Free Fund IV, Inc.;
• Puerto Rico Investors Tax-Free Fund V, Inc.;
• Puerto Rico Investors Tax-Free Fund VI, Inc.;
• Puerto Rico Tax-Free Target Maturity Fund, Inc.;
• Puerto Rico Tax-Free Target Maturity Fund II, Inc.;
• Puerto Rico Investors Bond Fund I;
• UBS IRA Select Growth & Income Puerto Rico Fund P.R. Fixed Income Portfolio;
• UBS Trust Company of Puerto Rico;
• First PR Tax Exempt Target Maturity Fund II;
• First PR Tax Exempt Target Maturity Fund III;
• First PR Tax Exempt Target Maturity Fund IV;
• First PR Tax Exempt Target Maturity Fund V;
• First PR Tax Advantaged Target Maturity Fund I;
• First PR Tax Advantaged Target Maturity Fund II.

When a financial advisor recommends an investment to a customer, the broker and his or her firm has a duty to first conduct due diligence on the investment. In addition, pursuant to applicable FINRA rules and regulations, the financial advisor, and by extension his or her firm, must seek to ensure that they conduct a suitability analysis in order to determine if the investment being recommended is suitable for the investor. The factors to be reviewed include the customer’s age, risk tolerance and stated objectives, net worth and income, and degree of sophistication with investing.

If you have invested in any Puerto Rico bonds or leveraged closed-end bond funds, including any of the above referenced CEFs, you may be able to recover losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

The Puerto Rico Urgent Interest Fund Corporation, also known as the Puerto Rico Sales Tax Financing Corporation (or Corporacion del Fondo de Interes Apremiante – COFINA in Spanish) issues bonds that are attached to Puerto Rico’s sales tax revenue. Specifically, Puerto Rico’s ‘Sales and Use Tax’, charges a 7% fee on many different transactions occurring on the Island. The revenue raised through COFINA is allocated in the following manner: • 21.4% of the COFINA tax revenue is allocated to local municipal government; • 39.2% of the COFINA tax revenue is allocated to state government; and • 39.2% of the COFINA tax revenue goes to COFINA bondholders.

In light of Judge Taylor Swain’s recent order to stay further payments on COFINAS, bondholders are now left in the lurch, holding Puerto Rico debt instruments that have suffered severe price deterioration and that no longer provide the coupon payments sought by fixed income investors. If you have invested in COFINAS, or other Puerto Rico bonds including bonds issued by the Puerto Rico Electric Power Authority (known as PREPAs) and you have suffered significant losses as a result, you may be able to recover your losses in FINRA arbitration.

Arbitration cases filed with the Financial Industry Regulatory Authority (FINRA) have charged that certain stockbrokers and investment advisors in Puerto Rico have over-concentrated customer accounts in Puerto Rico bonds and other securities including closed-end funds (CEFs), leading to unnecessary losses. Firms named in some of these arbitration cases include UBS, Merrill Lynch, and Popular Securities, among others.

If you believe that you may have a claim relating to recommendations of Puerto Rico COFINA or PREPA bonds, or other securities, you contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation. The attorneys at Law Office of Christopher J. Gray, P.C. are admitted in New York and Wisconsin but will also accept cases in other jurisdictions, including Puerto Rico, often working with co-counsel who are admitted in those jurisdictions.