Finra arbitrators ordered UBS Financial Services Inc. to pay $4.8 million to investors who lost money on Puerto Rican bonds.
A three-person Financial Industry Regulatory Authority Inc. arbitration panel found UBS and UBS Financial Services Inc. of Puerto Rico liable for breach of fiduciary duty, breach of contract and rescission related to the sale of Puerto Rican bonds to the claimants, Eugenia Fidalgo Gutierrez, Mercedes Fidalgo Gutierrez and Fidalgo Gutierrez Holding Corp.
“The causes of action relate to the purchase of UBS closed end funds containing Puerto Rico bonds and the alleged unauthorized use of lines of credit and margin in claimants’ accounts,” the May 13 arbitration award states.
The claimants received $4,654,289 in compensatory damages for breach of contract and rescission and $142,557 for breach of fiduciary duty. In addition, UBS paid $9,767 for the claimants’ witness fees. The claimants requested more that $15 million in damages.
One of the arbitrators, William D. Goren, concurred with most of the award but dissented on the damages for rescission.
The case was filed in July 2019. The bond sales date back to 2013, when the Puerto Rican municipal market collapsed, causing a wave of legal actions against UBS and other financial firms that sold the instruments.
The lawyer for the investors, Francisco A. Feliu Nigaglioni, declined to comment.
UBS criticized the decision.
“Although the arbitrators awarded less than the full damages claimants requested, UBS is disappointed with the decision to award any damages, with which we respectfully disagree,” a UBS spokesperson said in a statement. “UBS notes that the decision in this case was based on the facts and circumstances particular to these individual claimants, and is not indicative of how other panels may rule with regard to other customers who invested in similar products.”
The arbitrators allowed the claimants to introduce in the record arbitration awards from previous bond cases against UBS but did not allow them to introduce regulatory settlements, according to the award.
The arbitrators denied a request from UBS to expunge the case from the BrokerCheck records of brokers Miguel Pascual and Eduardo Gonzalez. They were not named as parties in the proceeding. Gonzalez continues to work for UBS, while Pascual is now with Nationwide Planning Associates. Both are based in Puerto Rico.
The evidentiary hearing was conducted via Zoom, according to the award document.
In July, Finra will lift its suspension of in-person arbitration hearings that had been in place since the beginning of the coronavirus pandemic last year. Arbitration hearings can be conducted by video or teleconference, if the parties agree or arbitrators approve a motion for remote proceedings.
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