UBS facing nearly $1 billion in Puerto Rico claims

Damage claims over its closed-end bond funds exceeded $900 million, the firm disclosed in third quarter earnings

Oct 28, 2014 @ 10:59 am

By Mason Braswell

Claims tied to UBS Wealth Management Americas' Puerto Rico closed-end municipal bond funds have risen to nearly $1 billion, the firm said in its third-quarter earnings report Tuesday.

Total damages sought exceed $900 million, up from $600 million in the second quarter and $300 million in the first quarter, according to the report. Clients of UBS's Puerto Rico unit who owned the Puerto Rico municipal bonds have alleged fraud, misrepresentation and unsuitability, the firm said.

“There's a very aggressive marketing campaign going on in Puerto Rico among lawyers,” said Lars Soreide, an attorney who is representing some investors in the funds.

The complaints have been cropping up since the funds started to lose value rapidly in August 2013 as investors became skeptical of Puerto Rico's ability to pay back its debts.

In February, a shareholder action was filed against a number of UBS entities alleging hundreds of millions in losses. Another federal class action was filed in May seeking damages for investor losses from May 2008 to May 2014, according to the firm's earnings report.

Earlier this month, the firm settled with the Office of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico for $5.2 million over charges that its brokers may have made unsuitable recommendations in selling the funds.

UBS said in its earnings report that an internal review had shown that some clients, mostly on the advice of one broker, invested proceeds of non-purpose loans in closed-end fund securities in violation of UBS policies.

UBS had sold more than $10 billion of the funds through 2012, according to marketing materials. The value of many of the funds remains depressed and more claims will likely be filed, according to another plaintiff's attorney, Jeffrey Kaplan of Dimond Kaplan & Rothstein P.A.

It will likely be several years before it is clear how much, if any, of the alleged damages the firm will have to pay. Mr. Kaplan said he was scheduling arbitration hearings, where investors will plead their case, for 2016.

“For investors who have not brought claims yet, there's a long road ahead of them,” he said.

UBS said it had set aside it estimated it would need to cover the actual damages, but did not disclose the amount. Last quarter, the firm set aside $44 million.

UBS spokesman Gregg Rosenberg declined to comment but the firm has said in the past that the funds had performed well for more than 20 years and provided additional tax benefits to investors. Other firms, including Bank of America Merrill Lynch, also face litigation.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Where in the U.S. are RIAs growing the fastest?

InvestmentNews' deputy editor Robert Hordt talks to senior columnist Jeff Benjamin about his report on how registered investment advisers are faring in different regions of the country.

Latest news & opinion

Top 10 RIAs in the Northeast

These are the largest registered investment advice firms in the Northeastern U.S., in terms of assets under management.

10 predictions for financial advice in 2019

Deloitte expects these 10 changes will hit the financial advice business in 2019.

Midwestern magic? RIA assets soared nearly 30% there last year

Theories for what's driving the growth spurt abound, but it surpassed all other regions of the country.

8 apps advisers love for getting stuff done

We reached out to advisers to find out which apps they are using to run their business more efficiently.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print