UBS Puerto Rico Bond Investor Losses in Billions: Report

New research indicates that investors in UBS Puerto Rico closed-end municipal bonds suffered losses of $1.66 billion during the first nine months of 2013.  

On December 30, the Securities Litigation & Consulting Group (SLCG) reported in its blog that some of UBS Puerto Rico’s 19 close-end bond funds lost up to 48% of their value over the past year.

The UBS Puerto Rico bond investor losses were “substantially greater” than Puerto Rican municipal bond funds in general, which were already having a bad year, with the Standard and Poor’s Municipal Bond Puerto Rican Index dropping 17% during that same time period.

Over the last month, SLCG has investigated whether UBS charged excessive markups for its Puerto Rico bond funds as well. In a January 6 blog post, the group lays out an intricate case for showing how UBS might have charged excessive markups, but warns that the group does not have detailed transaction data and calls for an investigation into the findings, which may have conclusive proof of such markups.

UBS faces a growing number of investor lawsuits and arbitration claims over the Puerto Rico bond funds. Investors allege the company misrepresented the risk involved with Puerto Rico Municipal Bonds.

According to allegations raised in many of the complaints filed recently, UBS pitched Puerto Rico bond funds as safe and secure, targeting the investments toward elderly people and others who rely on municipal bond funds for retirement.

Puerto Rico municipal bonds funds have spiraled down into junk ratings as the country undergoes an economic crisis. UBS sold many bond funds that were allegedly over-invested in Puerto Rico muni bonds. Although the funds previously provided high yields and involved special tax benefits, UBS has been targeted for how it has handled the problem.

Many individual investors who suffered losses have hired financial fraud lawyers to pursue arbitration claims through the Financial Industry Regulatory Authority (FINRA), which is a non-governmental regulatory body that handles resolution of disputes between investors and stockbrokers and other financial firms. It was created in July 2007, as a successor to the National Association of Securities Dealers, to arbitrate stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.