Articles Tagged with Puerto Rico municipal bonds

shutterstock_189302954-300x203According to BrokerCheck records financial advisor Mark Augusta (Augusta), currently employed by Hilltop Securities, Inc. (Hilltop Securities) has been subject to at least an astonishing 19 customer complaints and one employment termination for cause.  According to records kept by The Financial Industry Regulatory Authority (FINRA), Augusta’s customer complaints allege that Augusta sold his clients a variety of improper products including Puerto Rico municipal bonds, interest rate swap CDs (structured CDs), and other unsuitable debt securities.

In May 2015 Augusta’s then employer Wedbush Securities Inc. (Wedbush Securities) terminated Augusta after a client filed a complaint against him.

In February 2019 a customer filed a complaint alleging that Augusta violated the securities laws by, among other things, engaged in unauthorized and unsuitable investments made by the financial advisor in June 2014.  The claim alleged $398,832 in damages and is currently pending.

In August 2018 a customer filed a complaint alleging that Augusta violated the securities laws by, among other things, making unsuitable investments, breach of fiduciary duty, misrepresentations and omissions, negligence, and violations of California securities laws. The claim alleged $97,774 in damages and is currently pending.

In July 2018 a customer filed a complaint alleging that Augusta violated the securities laws by, among other things, misrepresentation by omission with respect to the disclosure of representative’s regulatory and disciplinary history, unsuitable recommendations, and financial abuse of an elder.  The claim seeks $375,000 in damages and is currently pending.

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shutterstock_112866430-300x199The securities attorneys at Gana Weinstein LLP are currently investigating previously registered broker Mariondy Fernandez (Fernandez). According to BrokerCheck Records held by the Financial Industry Regulatory Authority (FINRA), Fernandez has been subject to 19 customer disputes, 10 of which are still pending. The majority of these disputes concern violations of various securities laws regarding Puerto Rico municipal bonds and closed-end funds.

Most recently, in June 2018, a client alleged that Fernandez violated various securities laws, was negligent to industry standards, breached fiduciary duty, and failed to supervise in the case of the customer’s investments in Puerto Rico bonds and closed-end funds. This dispute is currently still pending.

In December 2017, a customer similarly alleged that Fernandez unsuitably placed the customer into Puerto Rico municipal bonds and over-concentrated the customer’s funds in the investments. In addition, the customer alleges failure to supervise and negligence. The customer has requested $1,910,000 in damages. this dispute is currently still pending.

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shutterstock_157106939-300x300The law offices of Gana Weinstein LLP continue to report on investor related losses and potential legal remedies due to recommendations to invest in Puerto Rico bonds and bond funds.   The island has been meeting with creditors before a U.S. bankruptcy judge in the largest public finance restructuring case.  The sides have been in mediation settlement talks to concerning the outcome of the island’s $70 billion debt.  However, according to news reports, the process could take years.  In fact, it has taken more than two years of debate with Puerto Rico’s government, creditors, and federal lawmakers just to get to this point.

According to some source Puerto Rico bond investors recovery ranges could be as low as 10 to 20 cents on the dollar when the island emerges.  Why so little?  How much can $70 to $100 billion be worth when there are only 1.4 million workers in Puerto Rico and a 45% poverty rate?  In fact, workers are leaving the island in record numbers that will soon be made worse by Hurricane Maria.  84,000 people moved from Puerto Rico to the United States in 2014 resulting in 1.8% of the island leaving.

Mostly retail investors will be the victims of the Puerto Rico debt debacle.  While news focus on hedge funds that have bought Puerto Rico bonds, only about 25 percent of Puerto Rican debt is held by hedge funds.  Compare that to the estimated 500,000 individual bondholders and hundreds of thousands more investors who purchased Puerto Rico mutual funds.

shutterstock_85873471-300x200Our securities fraud attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Samuel Koltun (Koltun) currently associated with RBC Capital Markets, LLC (RBC) alleging unsuitable investments in Puerto Rico municipal bonds among other claims.  According to brokercheck records Koltun has been subject to six customer complaints and one regulatory action.

Puerto Rico municipal bonds are speculative investments based upon the deteriorating finances of the island.  Many brokers have been accused of peddling these bonds in large concentrations to clients.  In September 2016 a customer filed a complaint against Koltun alleging over concentration in Puerto Rico bonds from 2012 through 2015.  The claim alleges $80,000 in damages and is currently pending.  In another complaint filed in April 2016, the customer alleges $260,000 caused by overconcentration in Puerto Rico municipal bonds.  The claim is currently pending.

Brokers in the financial industry have the fundamental responsibility to treat investors fairly.  This obligation includes making only suitable investments for their client.  The suitable analysis has certain requirements that must be met before the recommendation is made.  First, there must be reasonable basis for the recommendation for the investment based upon the broker’s and the firm’s investigation and due diligence.  Common due diligence looks into the investment’s properties including its benefits, risks, tax consequences, the issuer, the likelihood of success or failure of the investment, and other relevant factors.  Second, if there is a reasonable basis to recommend the product to investors the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives.  These factors include the client’s age, investment experience, retirement status, long or short term goals, tax status, or any other relevant factor.

shutterstock_26269225This is the second regulatory action that our firm has tracked concerning brokerage firms recommending concentrated positions in Puerto Rico bond funds without having appropriate supervisory system and procedures designed to identify and review concentrated securities purchases in Puerto Rico closed-end funds.

As we reported, The Financial Industry Regulatory Authority (FINRA) 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. Now in a similar action, FINRA alleged that between July 1, 2011, and June 30, 2013, Oriental Financial Services Corp. (Oriental) failed to establish, maintain, and enforce, supervisory systems and procedures to identify and review concentrated securities purchases in Puerto Rico municipal bonds and Puerto Rico closed-end bond funds.

Oriental has been a F]NRA member since 1993 and is a subsidiary of OFG Bancorp. Oriental operates out of headquarters in San Juan, Puerto Rico and engages in a general securities business that focuses on Puerto Rico municipal securities and open and closed-end mutual funds. Oriental has 50 brokers located in 12 branch offices.

shutterstock_92699377As our firm has written about on numerous occasions, our firm is currently representing investors who purchased the UBS Puerto Rico closed-end-bond funds and other Puerto Rico municipal debt. The allegations our firm has brought on behalf of clients focuses on UBS’ sales tactics and recommendations to its customers to invest in 23 proprietary closed-end funds. The UBS Puerto Rico bond funds contained substantial risks that allegedly were downplayed by the firm’s advisors in order to generate sales. The funds’ risks included excessive amount of leverage, conflicts of interests, and omission of material information concerning the risky nature of certain of the funds’ holdings.

Many of our clients tell very similar tales about how they were recommended to invest as much as 100% of their portfolios in the UBS Puerto Rico closed-end funds, some through additional margin or bank loans. Now, thanks to an article published by Reuters, Puerto Rico bond fund investors are starting to learn why.

According to the article, a group of brokers came up with a list of 22 reasons why they wanted to stop selling the funds including the facts that the funds suffered from low liquidity, excessive leverage, oversupply and instability, and contained debt underwritten by UBS, a conflict of interests.

shutterstock_180342155Albert Einstein once defined insanity as “doing the same thing over and over again and expecting different results.” While UBS does not challenge Einstein’s theories in physics it does challenge his thoughts on insanity. According to several news sources, including Financial Advisor Magazine and Reuters, UBS has told its brokers to continue selling its extremely speculative and risky UBS Puerto Rico bond funds to investors even after some investors have lost their entire investment and many others have suffered very substantial losses. Obviously, UBS believes a different result can be achieved with these recommendations. Let’s examine the facts and determine whether UBS has any grounds for such a belief.

Recently, investors have filed more than 500 complaints against UBS concerning the sales of the UBS Puerto Rico bond fund with more cases being filed daily. UBS’ sales tactics and recommendations to its customers to invest in 23 proprietary closed-end funds has come under fire and investors claim that the firm hid the substantial risks of the funds in order to generate sales and lucrative fees. On the surface the funds’ risks include is the excessive amount of leverage the funds employ. UBS leveraged up to 100% of the funds’ investments to raise additional cash, or the borrowing of a dollar for every dollar of capital invested in the funds. U.S. based funds by contrast are not allowed to take on such large leverage risk.

UBS has claimed that these funds have provided excellent returns and tax benefits to investors for decades. These claims appear to be the support for continuing to sell and recommend the bond funds to investors. However, investigations into UBS practices regarding the bond funds reveals that UBS’ decision to continue to sell the funds may come back to haunt the firm.

shutterstock_180968000On 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.

shutterstock_151894877The law offices of Gana Weinstein LLP has recently filed securities arbitration case on behalf of an investor against UBS Financial Services, Inc. and UBS Financial Services, Inc. of Puerto Rico (UBS) involving allegations that UBS’ misleading sales tactics and inappropriate recommendations surrounding Puerto Rico bonds in the Claimant’s portfolio. According to the complaint, UBS encouraged a 26 year-old unemployed single mother to invest her life savings in just three Puerto Rico municipal bonds—Puerto Rico Employees Retirement System Bonds (ERS Bond), Puerto Rico Commonwealth Public Buildings Authority Bonds (Commonwealth Bond), and Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) Industrial Revenue Refunding Bonds (AFICA Bond). In addition, the complaint alleged that UBS recommended that the Claimant take out significant loans to leverage up her investment in these three bonds that were all hovering just above junk status.

The Claimant is a 26 year-old single mother, dedicates all of her time towards caring for her eighteen-month-old daughter. Unfortunately, the Claimant’s father passed away in October 2010 causing Claimant to receive life insurance proceeds from his passing. The Claimant used some of those proceeds to pay off the debts that she had accrued over the years and sought to use the remaining portion to invest for the future of her and her daughter.

Claimant alleged that UBS completely disregarded the risks inherent to the Puerto Rico municipal bonds and constructed a portfolio comprised solely of these soon-to-be-defunct securities. Claimant’s brokers Ramon M. Almonte (Almonte) and Juan E. Goytia (Goytia), recommended an approximate 130% concentration, through the use of leverage, in municipal debt. Claimant alleged that the bonds were portrayed as safe, secure, fixed-income securities that would preserve her principal while providing tax-free income. Contrary to UBS’ portrayal, the bonds recommended are volatile investments carrying a multitude of risks. According to the complaint UBS’ unsuitable recommendations and inappropriate asset allocation ultimately cost the Claimant most of her money.

On Monday, April 14, 2014, the Financial Industry Regulatory Authority (FINRA) announced that it would lift the hold that it had put on some cases related to the collapse of Puerto Rico Bond Funds.

FINRA has been able to expand its pool of arbitrators that will be available to hear the cases. There are approximately 700 eligible arbitrators on its roster who have agreed to serve in Puerto Rico, where the majority of the 209 cases received to this point, are to be heard.

Last summer, investor fears began to rise when Detroit filed for bankruptcy. Investors, seeing a city go bankrupt, became concerned with Puerto Rico’s $70 billion in municipal debt. As fear set in, investors in the UBS Puerto Rico family of closed-end municipal bond funds began to lose billions. Nineteen of these funds lost $1.66 billion during the first nine months of 2013.

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