UBS hit with $4.4 million arb award over Puerto Rico bonds and funds

Finra panel gives UBS investors $4.25 million in damages, $170,000 in costs

Aug 22, 2019 @ 2:28 pm

By Bruce Kelly

A group of investors who bought Puerto Rico bonds and closed-end funds won a $4.4 million arbitration claim against UBS Financial Services Inc. and its related business in Puerto Rico.

The three investors and related trusts and businesses initially sought $7.3 million in damages. Instead, the three-person arbitration panel, which operates under the sanction of the Financial Industry Regulatory Inc.'s office of dispute resolution, awarded the clients $4.25 million in compensatory damages, plus interest, and $170,000 in costs.

The investors claimed that UBS had violated Puerto Rico's securities laws and Finra's code of conduct rules, along with other allegations, according to the award.

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UBS sold more than $10 billion of funds invested in Puerto Rico municipal debt through the end of 2012, much of it packaged as proprietary, in-house funds. The next year, the bottom fell out of the bond market.

Investors enjoyed the benefit of owning bonds that were exempt from federal, state and local taxes, but Puerto Rico's budget crisis has badly damaged the value of its bonds. UBS has been swamped with arbitration claims from investors who bought the bonds.

A spokesman for UBS, Peter Stack, said the firm declined to comment.

In March, Jose Ramirez, a former top UBS broker in Puerto Rico known to many as "The Whopper," was sentenced to a year and a day in prison after pleading guilty to criminal bank fraud in November.

At that time, Mr. Ramirez admitted to pocketing $1 million in commissions from customers, many of whom lost their life savings, in a scheme that centered on sales of the firm's proprietary closed-end bond funds.

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