Erez Law and Aldarondo & Lopez Bras File Claim Against Santander and UBS for Elderly Couple with $1.2 Million Investment Losses in Santander Funds, Puerto Rico Bonds

Erez Law and Aldarondo & Lopez Bras recently filed a claim against Santander Securities, LLC, and UBS Financial Services, Inc., and UBS Financial Services Inc. of Puerto Rico (“UBS”) on behalf of an elderly couple who suffered $1.2 million in losses related to Santander branded Puerto Rico Funds and Puerto Rico bonds. The couple, who is in their 70s and have been married for 55 years, received an inheritance, which they entrusted to their financial advisor at Santander and then UBS, according to the Statement of Claim. Prior to opening a Santander account, the couple had never maintained a brokerage account. They ware unsophisticated, conservative investors, who placed a high degree of trust and confidence in their broker, and sought to sought to generate income to meet their financial needs while preserving their capital.

Despite the couple’s risk aversion, their Santander broker recommended they concentrate the majority of their capital at Santander, and later UBS, in high risk, unsuitable closed end funds invested primarily in Puerto Rico debt (“CEFs”), according to the Statement of Claim. When the broker changed from Santander to UBS, he allegedly solicited the couple to transfer their account. While at UBS, the broker allegedly recommend the couple buy individual Puerto Rico bonds and use a margin loan to buy the bonds. This margin borrowing exacerbated the risk to which the couple was exposed. Due to the leverage created by the broker’s excessive margin borrowing, a modest downward price of the Puerto Rico bonds used as collateral triggered margin calls and eliminated the couple’s capital, according to the Statement of Claim.

Santander was the underwriter of CEFs CEFs differ from traditional open-end mutual funds in that open-end funds offer and redeem shares at the fund’s net asset value (“NAV”). CEF prices can be at a discount or a premium to the NAV. The NAV was determined by the managers of the fund. CEF prices can be at a discount or premium to the NAV. These Santander CEFs are not traded on an exchange or quoted on any quotation service and are only available to Puerto Rico residents. Santander has been the only or dominant secondary market dealer or liquidity provider for the CEFs.

The distributions paid by the Santander Funds are mostly tax-free, and only Puerto Rico residents may purchase the Puerto-Rico focused Santander Funds, which creates a very limited amount of qualified buyers for the Funds. As a result, the illiquidity risk o f the Santander Funds was inherently high at all times. Further, the Santander Funds are leveraged funds, which generally may borrow up to 100% of their equity. This leverage magnifies the risk of the Santander Funds. Santander, and later UBS, failed to explain these and other significant risks to the couple, according to the Statement of Claim.

In August and September 2013, the value of the Santander Funds and Puerto Rico bonds declined dramatically, and by February 2014, the ratings agencies had downgraded Puerto Rico’s debt to “junk” status or speculative (below investment grade). The couple has sustained approximately $1.2 million investment losses.

Dozens of other investors have retained Erez Law and Aldarondo & Lopez Bras to pursue claims against the firms who sold the investments to them. While UBS dominates the island’s market through its UBS Family of Funds, some of which are co-managed with Popular Securities, Banco Santander (Santander Securities), Merrill Lynch, Raymond James, Oriental Bank and others also sold investments linked to Puerto Rico’s municipal debt. Claims for investment losses against Santander, UBS and other brokerage firms must be arbitrated through the Financial Industry Regulatory Authority (“FINRA”), the largest dispute resolution forum in the securities industry.

If you invested in Santander branded Puerto Rico funds or Puerto Rico bonds, and have experienced financial losses, please call us at 888-840-1571 or complete our “contact form“. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies.

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Author: Jeffrey Erez

The founder of Erez Law, Jeffrey Erez, focuses exclusively on securities arbitration and litigation. Mr. Erez passionately believes in representing aggrieved investors and obtaining justice for his clients through litigation.