Puerto Rico Municipal Bond Funds Tag Archives

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

January 15, 2015 | by Staff Attorney

The 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.

UBS Puerto Rico Fined $3.6 Million and to Pay $1.7 Million in Restitution to Customers of its Bond Funds

November 6, 2014 | by Staff Attorney

On October 9, 2014, Puerto Rico’s Office of the Commissioner of Financial Institutions (OCFI) has settled its claims with UBS Financial Services Incorporated of Puerto Rico (UBS Puerto Rico) over UBS’s sale of closed-end mutual funds in Puerto Rico. The OCFI conducted a routine examination from October 15, 2013 through June 27, 2014. The examination of UBS Puerto Rico was conducted to determine if the firm complied with the Puerto Rico Uniform Securities ACT Regulation No. 6078.

The OCFI interviewed a sample of clients and examined whether certain former and current UBS Puerto Rico brokers either (i) recommended that, or (ii) permitted certain clients to, use non-purpose loans through UBS Bank USA to purchase securities in UBS brokerage accounts during the 2011-2013 period in violation of the customers’ loan agreements and UBS Puerto Rico policies.

The OCFI determined that for some clients, such a practice was unsuitable based on the customers’ financial objectives, risk tolerance and needs, and that UBS Puerto Rico brokers may have induced clients through the misrepresentations or omissions of material facts.

UBS Preparing to Face Investor Claims Over Puerto Rico Bond Funds

September 23, 2014 | by Staff Attorney

According to UBS’ second quarter earnings report, the bank is now looking at over $600 million in claims brought by Puerto Rico investors, who have suffered significant losses related to their investments in closed-end bond funds. The Financial Industry Regulatory Authority (FINRA) has been inundated with a plethora of claims in connection with the closed-end UBS Puerto Rico Bond Funds. Investors are looking to be made whole after they purportedly received misleading information regarding these investments. While the majority of the claims were filed against UBS Financial Services of Puerto, other firms, including Merrill Lynch, Banco Popular, Santander Securities, and Oriental Financial Services have also been named as Respondents in many of the claims.

UBS recognizes the perilous situation that it now faces with respect to these claims, explaining, “declines in the market prices of Puerto Rico municipal bonds and of UBS Puerto Rico sole-managed and co-managed closed-end funds since August 2013 have led to multiple regulatory inquiries, as well as customer complaints and arbitrations with aggregate claimed damages exceeding [$]600 million filed by clients in Puerto Rico who own those securities.”

Some of the claims that UBS face, including clients represented by our firm, include allegations of unsuitability, over-concentration, fraud, and breach of contract among others. FINRA and the Municipal Securities Rulemaking Board require broker dealers to have a reasonable basis to support the suitability of their recommendations to customers. Legal representatives for many claimants have said that the UBS employees prioritized commissions when they sold the closed-end bond funds to Puerto Rican investors, who were not economically equipped to make those investments.