A lawsuit brought by the purported beneficiaries of a trust is seeking more than $4.5 million as it joins the
chorus of claims alleging UBS Financial Services Inc. breached its fiduciary duty in managing money tied to proprietary closed-end Puerto Rico bond funds.
The plaintiffs, who claim to be beneficiaries of the estate of Nellie Sánchez Carmona, said the firm acted against Ms. Carmona's interests to keep the trust invested in closed-end funds, for which it earned management fees, underwriting fees, interest and commissions, according to the suit. Around 90% of the trust, which at one point had about $1.8 million in it, was invested in the closed-end funds, according to the plaintiff's attorney, Luis Mañana.
The complaint asks for about $3.5 million in damages and reimbursement of fees and interest income of around $1 million.
“The UBS defendants engaged in a systematic plan to prevent Sánchez Carmona, the beneficiary of the Hargen Trust, from collecting her benefits as she was entitled, to permit them to invest those monies in the [Closed End Funds] issue[d], sold and managed by the UBS defendants, and to engross the amounts under their management to increase the defendant's fees and commissions,” according to the complaint.
The plan, the plaintiffs said, involved keeping Ms. Carmona in the dark for 10 years about her status as beneficiary of the trust that her husband, Robert Hargen, had established. Instead, the firm reinvested some $664,000 that the trust earned during that time into the closed-end funds and continued earning income on the initial principal instead of paying out the earnings for Ms. Carmona's medical expenses as per the terms of the trust, according to the complaint, which was filed in December in U.S. District Court in Puerto Rico.
While Mr. Hargen died in 2003, UBS maintained on federal filings as recently as 2010 that he was still alive and owner of the trust, the complaint said.
“UBS defendants falsely, knowingly and willfully represented that Robert Hargen was U.S. owner of the trust with full knowledge that he had passed away in 2003,” the complaint states.
In addition, the suit accuses the firm of misrepresenting that Mr. Hargen, who lived in Florida since 2001, was a resident of Puerto Rico in order to comply with regulations requiring any investors in the closed-end bond funds to be residents of Puerto Rico or liquidate their holdings if they moved.
The firm listed Mr. Hargen's residence on tax return filings as the UBS office at AIG Plaza, according to the complaint.
UBS officials were not immediately available for comment, according to spokesman Gregg Rosenberg. The firm has said that the funds performed well for more than 20 years and provided tax benefits to investors.
UBS
has disclosed it faces some $1 billion in complaints related to the bond funds, which
started to lose value rapidly in August 2013 as investors became skeptical of Puerto Rico's ability to pay back its debts.
Mr. Mañana claimed that the trust is now worth less than $1,000.
