FINRA Fines Popular Securities Over Concentrated Customer Accounts in Puerto Rico Municipal Bonds and Bond Funds

shutterstock_175000886The Financial Industry Regulatory Authority (FINRA) recently sanctioned Popular Securities, Inc. (Popular Securities) alleging between July 1, 2011, and June 30, 2013, Popular failed to establish and enforce a supervisory system and procedures designed to identify and review concentrated securities purchases in Puerto Rico municipal bonds and Puerto Rico closed-end funds.

Popular has been a FINRA member since 1980, is headquartered in San Juan, Puerto Rico and engages in a general securities business, including customer purchases and sales of Puerto Rico municipal securities and open and closed-end mutual funds. The Firm has approximately 120 registered representatives located in its 9 branch offices.

Puerto Rico Bond Funds were sold as providing Puerto Rico residents with various tax benefits including exemption from US. estate and gift taxes. In addition, the Puerto Rico Bond Funds offered a triple tax benefit to investors. However, in December 2012, Puerto Rico general obligation and related bonds ratings were downgraded. Then, six months later in June 2013, the Puerto Rico Power Authority (PREPA) revenue bonds ratings were also downgraded.

FINRA found that Popular Securities customers purchased concentrated positions of in Puerto Rican municipal bonds and bond fund securities. Between December 2012, when the Puerto Rico general obligation bond rating were downgraded and June 2013, the FINRA alleged that the firm’s customers continued purchasing concentrated positions of these securities. However, according to FINRA Popular Securities’ written supervisory procedures did not outline the steps that the firm should take to review its customers’ securities purchases for concentration apart from a procedure that required quarterly reviews of “elderly” customer accounts for concentration of one product. Accordingly, FINRA found that Popular Securities did not establish or enforce any systems or procedures that required supervisors to review customer accounts for concentrated purchases in a single security or substantially similar securities, or securities of a single geographic region, including the Puerto Rico municipal bonds of bond fund securities. Further, FINRA found that the firm failed to document their reviews of concentration.

FINRA’s findings echo the allegations made by hundreds of investors against Popular Securities and UBS Financial Services, Inc. (UBS). Our firm represents investors in actions against UBS for concentrated investments in the UBS Puerto Rico Bond Funds and other Puerto Rico municipal bond debt. Our clients have come forward to our firm to tell very similar stories about how their financial advisors recommended nearly 100% of their portfolios to be invested in the UBS Puerto Rico closed-end funds, some through additional margin or bank loans. Due to the depressed economic activity and rising debt levels in Puerto Rico investors have lost billions.

The 23 funds include the Tax-Free Puerto Rico Fund I-II; Tax-Free Puerto Rico Target Maturity Fund; Puerto Rico AAA Portfolio Target Maturity Fund; Puerto Rico AAA Portfolio Bond Fund I-II; Puerto Rico GNMA & U.S. Government Target Maturity Fund; Puerto Rico Mortgage-Backed & U.S. Government Securities Fund; Puerto Rico Fixed Income Fund I-VI; Puerto Rico Investors Tax-Free Fund I-VI; Puerto Rico Tax-Free Target Maturity Fund I-II; and the Puerto Rico Investors Bond Fund.

Investors who have suffered investment losses may be able recover their losses through arbitration. The attorneys at Gana LLP are experienced in representing investors in the mishandling of their accounts. Our consultations are free of charge and the firm is only compensated if you recover.