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.

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Securities and Exchange Commission (“SEC”) Administrative Law Judge Brenda P. Murray recently issued an Initial Decision in In re Ferrer and Ortiz, Initial Decision Release No. 513, Administrative Proceeding File No. 3-14862. In the decision Judge Murray declined to order remedial action against former UBS Puerto Rico employees Miguel A. Ferrer and Carlos Juan Ortiz-Leon and also found that certain conduct by Messrs. Ferrer and Ortiz did not violate the federal securities laws. The charges of wrongdoing, which Judge Murray rejected, involved allegedly misleading statements that Ferrer and Ortiz made about the value of UBS PR closed-end funds, as well as certain UBS PR practices with respect to the pricing of UBS PR closed-end funds.

While no action was taken against Messrs. Ferrer and Ortiz, the SEC judge’s decision does not necessarily mean that investors in UBS Puerto Rico closed end funds do not have valid claims. The conduct charged in the SEC proceeding occurred during 2008 and 2009, and the decision was largely limited to addressing charges that Mr. Ferrer and Mr. Ortiz violated federal securities laws by making misleading statements concerning the value of UBS PR closed-end funds during the 2008-09 time frame. The full text of the SEC judge’s decision is accessible on this page.
UBS ADMIN DECISION

Investors may have valid claims that are different from those rejected in the SEC judge’s decision. Some investors reportedly received unsuitable recommendations to purchase the UBS PR closed-end funds based on representations by individual brokers. Some investors reportedly chose to buy the funds based on the representation that the funds paid a steady yield of dividends, but were safe, and that investors’ principal was not at risk because of the secure municipal bonds backed by the Puerto Rico government in which the funds invested. Such investors would be asserting claims under a completely different legal standard set forth in Financial Industry Regulatory Authority (“FINRA”) rules, and also may be complaining of conduct that occurred after 2009- even as late as August and September, 2013. Therefore, the decision in the SEC case against Ferrer and Ortiz does not mean that individual investors cannot pursue claims against brokers who sold them UBS Puerto Rico closed-end fund shares.

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 and/or the broker or other brokerage firm that sold them the funds. In addition, investors who could not afford to take the risk of losing money in these funds, but received reommendations to buy the funds, may also have claims. Investors may contact the Gray Firm in New York at (866) 966-9598 or newcases@investorlawyers.net (or via the contact form on this page) for a confidential, no-obligation consultation.

Puerto Rico requires that attorneys be licensed in order to appear as counsel of record in FINRA arbitration proceedings. The Gray Firm is not licensed to practice in Puerto Rico and is offering legal advice only to investors in the states. The Gray Firm is working with Puerto Rico attorneys who can advise and represent those investors who live in Puerto Rico.

Investors have reported that financial advisors in Puerto Rico sold them closed-end funds based on the representation that the funds paid a steady yield of dividends, but were safe and that investors’ principal was not at risk because of the secure municipal bonds backed by the Puerto Rico government in which the funds invested.

However, 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. Reportedly, certain ten-year Puerto Rico general obligation bonds had a yield of 4.89% as of September 30, 2013 (bond yields rise as bond prices fall).

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.

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. Se habla espanol.

Puerto Rico requires that attorneys be licensed in order to appear as counsel of record in FINRA arbitration proceedings. The Gray Firm is not licensed to practice in Puerto Rico and is offering legal advice only to investors in the states. The Gray Firm is working with Puerto Rico attorneys to advise and represent those investors who live in Puerto Rico.

The arbitration claim alleges that Fund I was sold by Merrill Lynch as one of a group of safe mutual funds that were largely invested in municipal bonds issued by the Puerto Rico government. The closed-end funds such as Fund I are solely for sale to residents of Puerto Rico and have reportedly been heavily marketed there by UBS and other brokerage firms (including Merrill Lynch) for at least the past 5 years. Several of the 23 closed-end funds in question have reportedly lost over half their value, despite being marketed as safe investments.

The New York Times Dealbook blog reports that some UBS customers were encouraged by its brokers to borrow money to invest in these funds and that in some cases, money was lent improperly, exacerbating current losses. A number of UBS clients have reportedly been forced to liquidate hundreds of millions of dollars in holdings in these funds to meet margin calls. Robert Mulholland, the head of wealth management advisers in the Americas for UBS, reportedly characterized the closed-end fund issue as ”the perfect storm” in a meeting in San Juan last month.

Fund I and the other UBS closed-end funds at issue were heavily exposed to Puerto Rico government-issued bonds that carried substantial risks. Now that the underlying municipal bonds have lost value, the 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. In the case of Fund I, shares were shown on customer statements as worth $8.55 a share as late as July 2013. By early September 2013, the value of the Fund I shares had dropped from $8.55 a share to $6.06. As of October 1, 2013, the price of Fund I shares had dropped further to $3.738.

Other UBS closed-end funds are believed to have suffered similar drops in value.

Other UBS Puerto Rico funds concerning which investors may wish to consider filing arbitration claims include the following:

• Puerto Rico AAA Portfolio Based Funds I and II
• Puerto Rico AAA Portfolio Target Maturity Fund
• Puerto Rico Investor’s Tax-Free Funds I – VI
• Puerto Rico GNMA & U.S. Gov. Target Maturity Fund
• Puerto Rico Investors Bond Fund I
• Puerto Rico Mortgage Backed & US Govt. Fund
• Puerto Rico Fixed Income Funds I – VI
• Tax-Free Puerto Rico Target Maturity Fund
• Tax-Free Puerto Rico Funds I and II

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.

Puerto Rico requires that attorneys be licensed in order to appear as counsel of record in FINRA arbitration proceedings. The Gray Firm is not licensed to practice in Puerto Rico and is offering legal advice only to investors in the states. The Gray Firm is working with Puerto Rico attorneys to advise and represent those investors who live in Puerto Rico.

The collateral for the CDO was managed by ACA Management and reportedly was primarily consisted of CDS on subprime RMBS, or residential mortgage-backed securities. According to securities arbitration lawyers, the CDO — as the “insurer” — received premiums from the CDS collateral on a monthly basis. Then the premiums were used for CDO bondholder payments. According to the SEC, ACA and UBS agreed that the collateral manager would seek bids for yield that contained both a fixed running spread and upfront cash in the form of “points.”

According to the SEC’s findings, UBS collected upfront payments totaling $23.6 million while acquiring collateral and, instead of transferring the upfront fees at the same time as the collateral, UBS kept the upfront payments and chose not to disclose this information. In addition to retaining the undisclosed $23.6 million, it also retained a disclosed fee of $10.8 million. Investment fraud lawyers say the decision not to disclose the retention of the upfront points was inconsistent with prior UBS deals and the industry standard. Allegedly, UBS’ head of the U.S. CDO group stated, “Let’s see how much money we can draw out of the deal.”

“UBS kept $23.6 million that under the terms of the deal should have gone to the CDO for the benefit of its investors,” says George S. Canellos, co-director of the SEC’s Division of Enforcement. “In doing so, UBS misrepresented the nature of the CDO’s collateral and rendered false the disclosures about how the collateral was acquired.”

The $50 million settlement includes disgorgement of the upfront payments amounting to $23.6 million and the $10.8 million disclosed fee, $9.7 million in interest and a $5.7 million penalty. If you invested in the CDO ACA ABS 2007-2, find out more about your legal rights and options by contacting a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a no-cost, confidential consultation.