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Articles Tagged with Fidelity Investments

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Investment fraud lawyers continue to investigate claims on behalf of investors who suffered significant losses in Puerto Rico municipal bonds and closed-end mutual funds exposed to losses in such bonds,  even as declining credit ratings threaten to drastically increase the losses suffered by many investors.

Declining Credit Ratings More Trouble for UBS Puerto Rico Bond Investors

Both Standard & Poor and Moody had already put Puerto Rico’s general obligation municipal bonds on negative watch when Fitch Ratings joined them on November 14. The Puerto Rico bonds are already rated by all three agencies at just one step above “junk,” or non-investment grade. Currently, Puerto Rico has outstanding debt amounting to around $11 billion in this category, and securities arbitration lawyers say that the negative watch given to the bonds by all three rating agencies is an indication that the debt will likely be downgraded in the coming months to junk-bond status.

If these bonds are downgraded to junk status, the resulting flood of sales could cause another drastic drop in the bonds’ price, and could also result in losses in closed-end mutual funds invested in the bonds. Unfortunately, most buyers are unwilling to accept the risk of purchasing these bonds unless significantly discounted, leaving many investors forced to keep the investment or sell it at a significant loss.

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Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses in U.S. mutual funds that contained Puerto Rico bonds. Massachusetts securities regulators are currently investigating these investments and claim that many investors may have been unaware of the exposure to the Puerto Rico fiscal crisis.


According to securities arbitration lawyers, many state-specific municipal bond funds contained Puerto Rico debt and, as a result, other investigations may ensue. According to Massachusetts Secretary of the Commonwealth, William Galvin, the investigation includes three large fund managers: OppenheimerFunds (a unit of MassMutual Life Insurance Co.), UBS Financial Services and Fidelity Investments. The investigation is regarding how these managers sold and disclosed the risk of mutual funds containing heavy concentrations of the Puerto Rico bonds.

“Puerto Rico is currently on the verge of insolvency and many of its obligations are at or near junk rating, thus the risks associated with its municipal debt obligation are disproportionately high,” Galvin notes.

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Following settlements with the Financial Industry Regulatory Authority (FINRA), stock fraud lawyers say Charles Schwab and Fidelity investors could recover losses through securities arbitration. Fidelity reportedly has agreed to pay a $375,000 fine in a settlement with FINRA over allegations that the firm committed sales violations from December 2006 through December 2008 involving the Fidelity Ultra Short Bond Fund.

According to FINRA’s allegations, Fidelity Investments Institutional Services Co. Inc. and Fidelity Brokerage Services LLC, two Fidelity broker-dealers, failed to provide adequate supervisory procedures and produced misleading advertising and sales materials for the fund. Apparently when the subprime crisis unfolded, the fund began losing value in June 2007, but the sales materials for Fidelity continued to purport fixed-income securities of “high credit quality” being held by the fund. The fund’s net asset value fell to $8.25 per share by April 2008, from $10 per share before June 2007, according to investment fraud lawyers.

In a separate ruling in May, a settlement was approved by a federal court in a class action filed against Fidelity units in 2008. In that settlement, Fidelity paid $7.5 million to investors of the bond fund. The Charles Schwab Corp. settled a similar case last year in which they paid almost $119 million over its YieldPlus bond fund. A separate class action claim saw Schwab pay another $235 million to investors in 2010. However, stock fraud lawyers believe that not all investors were compensated.

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