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 firstname.lastname@example.org for a no-cost, confidential consultation.