UBS Hit with $18M FINRA Verdict Over Puerto Rico Municipal Bonds

The non-governmental regulatory group that oversees the financial industry has ordered UBS Financial Services to pay $18.6 million in a fraud arbitration claim over the sale of Puerto Rico closed-end mutual funds, which were marketed as a safe and secure investment, but ultimately collapsed.

Puerto Rican couple Mercedes Imbert De Jesus and Rafael Vizcarrondo filed a financial fraud case against UBS, which was arbitrated through the Financial Industry Regulatory Authority (FINRA), which handles all disputes between investors and brokers. The couple claimed that UBS made unsuitable investments when Puerto Rico bond funds were recommended, indicating that the firm failed to supervise their broker and breached their fiduciary duty.

FINRA agreed in a decision (PDF) released on Monday, ordering UBS Financial Services and UBS Financial Services of Puerto Rico to pay $12.7 million in compensatory damages, $3.18 million in attorney fees, $2.5 million in interest, and $163,000 for the cost of experts.

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In recent years, UBS sold Puerto Rico bond funds, often targeting elderly individuals and others who rely on municipal bond funds for retirement. However, UBS has faced a growing number of financial fraud claims as Puerto Rico fell into economic crisis, claiming that the broker withheld important information about the risk and never should have recommended the bond funds.

Estimates suggest that UBS Puerto Rico municipal bond investors suffered losses of at least $1.66 billion during the first three quarters of 2013, and that was before they were downgraded to “junk” status in February 2014. The downgrade came after the island territory failed to address fiscal problems that include $70 billion in debt.

UBS faces about 1,000 similar arbitration claims that it oversold the Puerto Rico bonds to its customers. It has lost several other claims in recent months as well.

In October 2015, the U.S. Securities and Exchange Commission (SEC), and FINRA hit the firm with $33.5 million in fines over the Puerto Rico bond funds. At the time, FINRA ordered UBS to pay back $11 million in restitution to 165 customers who suffered losses.

FINRA indicated at the time that the company had failed in its supervisory duties in overseeing the fund for more than four years.


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