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UBS, through its affiliate UBS Financial Services Incorporated of Puerto Rico, recommended that many of its clients take concentrated positions in closed-end Puerto Rican municipal bond funds. Because of UBS’s unsuitable recommendations, many investors have lost their retirement savings and their homes. In the following video, UBS Puerto Rico Bond Lawsuit Attorney Peter Mougey explains in detail the allegations in the lawsuit and how best to seek recovery and a settlement.
Puerto Rico’s economy has been in a decline for years. In an effort to boost its economy, Puerto Rico and its agencies doubled borrowing in the municipal bond market in the last ten years to a tune of $70 billion in 2013. UBS Puerto Rico exacerbated the impending economic disaster and caused investors to lose billions in UBS Puerto Rico municipal bond funds.
Specifically, UBS encouraged investors to over concentrate in the high-risk, illiquid, closed-end municipal bonds of Puerto Rico without disclosing the risks of the investment or considering its suitability for the investors’ actual goals. However, many of the bonds held in the closed-end funds were far from stable investments. Many UBS clients were forced to liquidate their life savings to meet margin calls on the bonds. These victims are left with nothing.
UBS Puerto Rico inappropriately recommended that investors concentrate their portfolios in closed-end Puerto Rican municipal bond funds. The closed-end funds were not diversified. The clients holding a high percentage of their liquid net worth in the closed-end funds and individual Puerto Rican individual bonds, were exposed to too much risk. UBS, as the investment advisor to many of the closed-end funds, purchased high risk individual bonds on leverage of more than 50%. In comparison, many U.S. municipal bond funds are generally only leveraged at about 22%. Being leveraged over 50% means that for every dollar held with investor assets, another fifty cents is bought with borrowed money. This strategy increases risk.
UBS financial advisors also encouraged investors to buy bonds with lines of credit. In normal circumstances, if an investor buys securities on borrowed money, it is through a margin loan, which is regulated and limits the risk an investor can take. UBS financial advisors were incentivized to encourage lines of credit because they could receive a commission on the line of credit and the bonds purchased.
UBS Financial Services, Inc. of Puerto Rico has 5 branches and approximately 132 financial advisors. In 2013, UBS Puerto Rico reported significant financial losses across multiple, proprietary closed-end bond funds. It is alleged in the SEC complaint, filed in 2012, that UBS Puerto Rico made “serious misrepresentations and material omissions” about the liquidity and pricing of non-exchange traded, closed-end bonds. UBS did settle with the SEC for $26 million in disgorgement and fines without admitting fault. However, a SEC administrative judge ruled that the SEC failed to prove that two high-ranking UBS PR executives committed fraud. It is important for UBS customers to understand that our cases are about suitability.
According to news sources like the Chicago Tribune, US authorities are probing UBS for criminal fraud for directing clients to use non-purpose loans instead of margin loans to buy the Puerto Rican bond funds that then plummeted in value. More than $600 million in claims have already been filed against UBS by investors who lost their life savings. Almost anyone with investments in the municipal bond market has been affected in some way by the actions of UBS Puerto Rico. According to Morningstar Inc, 77 percent of municipal bond funds hold at least some Puerto Rican bonds.
UBS financial advisors often sold these leveraged bonds to retirees and conservative investors. Leveraged bonds are a very risky, volatile investment and are often not recommended to conservative investors. However, UBS Puerto Rico frequently sold to conservative investors, and even encouraged retirees to borrow money in order to purchase these leveraged bonds. The following UBS Puerto Rico bond are under investigation:
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