UBS Financial Services, Inc. may face a number of financial fraud lawsuits brought on behalf of investors in it’s Puerto Rico municipal bond funds, which have experienced substantial losses recently.
Puerto Rico bonds funds have spiraled down into junk ratings as the country undergoes an economic crisis, and they are taking many U.S. investors for the ride.
UBS sold many municipal bond funds that were allegedly over-invested in Puerto Rico bonds. Although the funds previously had high yields and involved special tax benefits, UBS has been targeted by the Securities and Exchange Commission (SEC) for how it has handled the problem.
At least 14 closed-end funds were sold through UBS that have been impacted by Puerto Rico bond fund losses. The brokerage firm has reportedly sold more than $10 billion worth of the funds, but the value for investors has dropped as those bonds lost value.
UBS now faces a number of complaints that may be brought with the Financial Industry Regulatory Authority (FINRA), including one filed a few weeks ago on behalf of a retiree who discovered that her portfolio of $500,000 was entirely invested in Puerto Rico bonds.
Individual investors are able to pursue damages against UBS through an investor arbitration claim with 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.
After Settlement, Bond Problems Persisted
In May 2012 the SEC charged UBS’s Puerto Rico subsidiary with misleading investors, concealing a liquidity crisis, and masking its involvement in nearly two dozen closed-end mutual funds. The company agreed to settle the charges for $26.6 million after the SEC hit it with a cease-and-desist order.
However, Puerto Rico junk bonds have continued to slide, and UBS and many U.S. investment firms are now facing increased risk and losses, and scrutiny by the SEC. An estimated 77% of U.S. municipal-bond mutual funds hold Puerto Rico bonds. UBS and at least two other fund managers are now under investigation by the Massachusetts Secretary of the Commonwealth.
The company has reportedly put one broker on administrative leave for allegedly telling clients to buy securities on credit. The bank says it is investigating lending practices among its Puerto Rico brokers. The company claims to represent half of the millionaires who live in Puerto Rico.
While the brokerage firm has encouraged investors to contact the company direclty and put complaints about losses in writing, UBS financial fraud lawyers recommend that investors first contact an attorney and explore all of their possible legal options before taking any action.
UBS’s Puerto Rico bond funds include:
- Puerto Rico AAA Portfolio Target Maturity Fund
- Puerto Rico GNMA US Government Target Maturity 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
- Tax-Free Puerto Rico Fund, Inc.
- Tax-Free Puerto Rico Fund II, Inc.
- Tax-Free Puerto Rico Target Maturity Fund, Inc.
- Tax Free Puerto Rico Fund
- Puerto Rico AAA Portfolio Bond Fund
- Puerto Rico AAA Portfolio Bond Fund II