Category Archives: UBS Financial Services News

Blau & Malmfeldt is investigating the fraudulent sales practices of UBS Financial Services. Read the most current UBS Financial Services news.

UBS Still Facing Numerous Customer Complaints Despite Recent Decision in SEC Case

On October 30, 2013 a Securities and Exchange Commission (SEC) Administrative Law Judge dismissed an administrative proceeding against two UBS Puerto Rico employees, Miguel A. Ferrer and Carlos J. Ortiz.  Cases such as this are prosecuted by the SEC’s Division of Enforcement and are decided by administrative law judges who work within the SEC.   SEC Chief Administrative Law Judge Brenda P. Murray ruled that there was insufficient evidence to prove that these specific UBS employees had committed fraud in 2008 and 2009 in connection with the sale of UBS mutual funds focused on Puerto Rico municipal bonds. The SEC had accused Ferrer and Ortiz of making false statements in connection with the sale of UBS Puerto Rico municipal bond funds to UBS customers.

ALJ Murray stated in her order: “I do not find the preponderance of the evidence supports the division’s allegation that UBS PR, Ferrer and Ortiz engaged in a fraudulent course of conduct or a scheme to mislead customers when they represented the funds as profitable, safe, and stable investments and that supply and demand were responsible for fund prices.”

UBS is facing a flood of investor complaints and arbitration actions stemming from its sale of Puerto Rico municipal bond funds.  Investors contemplating taking legal action against UBS in connection with UBS’s recommendation and sale of Puerto Rico municipal bond funds should keep in mind that the recent ruling in favor of these UBS employees will have little effect upon most investors’ potential cases.

It never made sense for conservative investors seeking income to invest in these funds, for investors to concentrate their savings in these funds, or to purchase these funds on margin. There is strong evidence that UBS made unsuitable recommendations to many of its brokerage customers and that UBS continued to push these investments upon its customers even after UBS had to step in behind the scenes in to prop up the failing Puerto Rico municipal bond market.

Investors in UBS Puerto Rico municipal bond funds may recoup losses by pursing claims for misrepresentation and unsuitability in arbitration at FINRA Dispute Resolution.

UBS investors are encouraged to contact the law firm of Blau & Malmfeldt to discuss recovery options. Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.  Contact us at 312-443-1600 for a free initial consultation.

UBS Puerto Rico Municipal Bond Funds Post Sharp Declines

As reported previously on this blog, the market for Puerto Rico municipal bonds has faced sharp declines over the past two months.  Contributing to the market decline have been Puerto Rico’s burgeoning debt as well as a marked decline in both the territory’s economy and population.  Puerto Rico’s economy, once considered to have great potential due in part to the absence of federal income taxation within the territory, is now in great peril.  To make matters worse, Puerto Rico (unlike a city such as Detroit) cannot declare bankruptcy.  It is certainly possible that Puerto Rico will default on its municipal bond obligations.

UBS underwrote a significant portion of Puerto Rico’s municipal bond offerings and manages numerous mutual funds focused on Puerto Rico municipal bonds.  Some of these mutual funds are highly leveraged, meaning that the funds have borrowed funds in order to purchase more securities for their portfolios.  The use of leverage makes the mutual fund a much riskier investment.

On November 16, 2013, UBS reported the following net asset values for its Puerto Rico municipal bond mutual funds (percentage losses shown are since inception):

Tax-Free Puerto Rico Fund, Inc.: 4.829 (-51.7%)

Tax-Free Puerto Rico Fund II, Inc.: 4.236 (-57.6%)

Tax-Free Puerto Rico Target Maturity Fund, Inc.: 4.031 (-59.7%)

Puerto Rico AAA Portfolio Target Maturity Fund, Inc.: 7.748 (-22.5%)

Puerto Rico AAA Portfolio Bond Fund, Inc.: 7.202 (-28.0%)

Puerto Rico AAA Portfolio Bond Fund, II Inc.: 7.997 (-20%)

Puerto Rico GNMA & US Govmt. Target Maturity Fund, Inc. 8.015 (-19.8%)

P.R. Morgage-Backed & US Govmt. Securities Fund, Inc.: 6.020 (-39.8%)

Puerto Rico Fixed Income Fund, Inc.: 3.327 (-66.7%)

Puerto Rico Fixed Income Fund II, Inc.: 3.905 (-61.0%)

Puerto Rico Fixed Income Fund III, Inc.: 3.749: (-62.5%)

Puerto Rico Fixed Income Fund IV, Inc.: 4.798 (-52.0%)

Puerto Rico Fixed Income Fund V, Inc.: 4.275 (-57.3%)

Puerto Rico Fixed Income Fund VI, Inc.: 5.241 (-47.6%)

Puerto Rico Investors Tax-free Fund, Inc.: 3.90 (-61%)

Puerto Rico Investor Tax-Free Fund, Inc. II: 3.75 (-62.5%)

Puerto Rico Investors Tax-Free Fund III, Inc.: 4.14 (-58.6%)

Puerto Rico Investors Tax-Free Fund IV, Inc.: 3.60: (-64%)

Puerto Rico Investors Tax-Free Fund V, Inc.: 3.92 (-60.8%)

Puerto Rico Investors Tax-Free Fund VI, Inc.: 4.72 (-52.8%)

Puerto Rico Tax-Free Target Maturity Fund, Inc.: 1.06 (-89.4%)

Puerto Rico Tax-Free Target Maturity Fund II, Inc.: 1.59 (-84.1%)

Puerto Rico Investors Bond Fund: 4.21 (-57.9%)

Investors in Puerto Rico’s municipal bond funds are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 to discuss recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

 

UBS’s Puerto Rico Woes

UBS is facing a tidal wave of problems stemming from Puerto Rico municipal bonds.   UBS underwrote billions of dollars of Puerto Rico municipal bond issues, purchased many bonds for various mutual funds that it manages and that are focused on Puerto Rico municipal bond issues, encouraged many of its brokerage customers to concentrate their savings into these funds, and then took steps to stabilize the Puerto Rico municipal bond markets.

Puerto Rico is facing an economic crisis, with high unemployment rates, a pension dilemma, and a rising number of people leaving the island in favor of the mainland United States. The government has proposed increasing taxes to help generate revenue.

Since 2004, Puerto Rico’s debt from municipal bonds has doubled to about $70B, which represents $19,000 for every person living in the territory, and approximately 70% of the territory’s GNP.   During this period of time, the territory’s economic output has contracted by approximately 16% and its population has likewise fallen.   Partly as a result of these factors, Puerto Rico’s bonds have fallen in value by approximately 18% this year.   The bond rating agencies, including S&P, have assigned Puerto Rico municipal bonds junk status.

Because Puerto Rico is a commonwealth, not a city, it cannot declare bankruptcy in the same way as Detroit, so default is a possibility. The federal government could also choose to bail the island out, but the United States Treasury Department stated on October 8, 2013, that it is not planning to provide financial assistance to Puerto Rico.

UBS brokers in Puerto Rico allegedly encouraged clients to buy the island’s highly leveraged municipal bond funds, financing the investments by borrowing on credit lines or through margin accounts.   UBS brokers also encouraged many of their customers to invest in various mutual funds managed by UBS that are concentrated in Puerto Rico municipal bonds.  These mutual funds have taken a beating as of late.

It appears that UBS may have taken steps to try to stabilize the market for Puerto Rico municipal bonds, and in doing so, harmed many of its brokerage customers.

Auto executive Victor Gomez, along with other members of his family, recently filed an arbitration complaint with FINRA against UBS Financial Services of Puerto Rico. Also listed in the complaint are UBS representatives Jose M. Ramirez, Carlos Freire-Borges, Carlos Ubinas, Doel Garcia, and 11 anonymous persons who also allegedly participated in financial misconduct.

According to the complaint, Gomez and his family had deposited a “very significant percentage” of their total net worth with UBS. The complaint alleges that UBS made misrepresentations to the Gomezes in connection with their investments in various Puerto Rico municipal bond investments.

UBS has allegedly started an internal investigation into the practices of some of its brokers on the island. According to the New York Times, one broker has already been placed on administrative leave for encouraging his clients to borrow on credit lines.

Blau & Malmfeldt is continuing its investigation into UBS’s marketing of Puerto Rico municipal bond funds.  Please contact us at 312-443-1600 or email Paul Malmfeldt at pmalmfeldt@blau-malmfeldt.com to learn about recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

UBS’s Muni Bond Sales Practices

Auto executive Victor M. Gomez and members of his family have filed what is expected to be the first of many FINRA complaints against broker-dealer firm UBS Financial Services, Inc. They are seeking nearly $30 million in restitution, plus punitive damages, and attorney’s fees.

The statement of claim alleges that UBS acted fraudulently and did not properly disclose information to its clients, claiming that UBS employees in Puerto Rico generated revenue for UBS by creating unsuitable investment strategies for clients and failing to disclose the risks of certain investments.

Earlier this week, the New York Times reported that multiple UBS clients had to liquidate their holdings in Puerto Rican municipal bond funds. Clients were encouraged by UBS to borrow large sums of money to invest in highly leveraged bond funds run by the firm, and improperly advised to borrow on lines of credit.

In August, UBS agreed to pay approximately $50 million to settle charges by the Securities and Exchange Commission, which alleged that UBS failed to disclose a large sum of money that it received in upfront payments as the firm acquired credit default swaps as collateral. The collateral was not acquired at fair market value, and should have gone to a collateralized debt obligation to benefit its investors.

UBS agreed to disgorge the $23.6 million it had not transferred to the CDO, in addition to millions of dollars in penalties and fees.

The devaluation of Puerto Rican government bonds has greatly impacted UBS Puerto Rico, which operates 23 closed-end mutual funds. Many of these funds have lost at least 50 percent of their value over time.

Blau & Malmfeldt is investigating the sales practices of UBS with regards to the municipal bonds. Please call 312-443-1600 or email Paul Malmfeldt at pmalmfeldt@blau-malmfeldt.com to schedule a free consultation or learn more about the services offered by Blau & Malmfeldt.