Erez Law and Aldarondo & Lopez Bras recently filed a claim against UBS Financial Services, Inc. and UBS Financial Services Inc. of Puerto Rico (“UBS”) on behalf of an elderly couple who suffered more than $280,000 in losses related to UBS/UBS-PR branded Puerto Rico Funds and Puerto Rico bonds. Aldarondo & Lopez Bras is a separate law firm only licensed to practice law in Puerto Rico. The couple, who has been married for more than 50 years, entrusted virtually all of their retirement savings to UBS, and allegedly told UBS they wanted safe, stable investments, and could not afford to lose their savings. Despite the couple’s risk aversion, UBS and its financial advisor recommended a dangerous and unsuitable concentration in high risk UBS/UBS-PR branded Puerto Rico Funds, according to the Statement of Claim.
The husband, age 73, has a fifth grade education and retired at age 61 after working approximately 40 years as a heavy machinery mechanic. He suffers from severe hearing and back problems. By January 2013, virtually all of the couple’s funds were invested in high-risk and unsuitable proprietary closed-end funds invested predominantly in Puerto Rico debt (“CEFs”). UBS Puerto Rico was the primary underwriter of 23 CEFs with a total market capitalization of more than $5 billion. The UBS Family of Funds, included: Tax-Free Puerto Rico Fund, Inc.; Tax-Free Puerto Rico Fund II, Inc.; Tax-Free Puerto Rico Target Maturity Fund, Inc.; Puerto Rico AAA Portfolio Target Maturity Fund, Inc.; Puerto Rico AAA Portfolio Bond Fund, Inc.; Puerto Rico AAA Portfolio Bond Fund II, Inc.; Puerto Rico GNMA & U.S. Government Target Maturity Fund, Inc.; Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, Inc.; Puerto Rico Fixed Income Fund, Inc.; Puerto Rico Fixed Income Fund II, Inc.; Puerto Rico Fixed Income Fund III, Inc.; Puerto Rico Fixed Income Fund IV, Inc.; Puerto Rico Fixed Income Fund V, Inc.; and Puerto Rico Fixed Income Fund VI, Inc.
The distributions paid by the UBS Funds are tax-free, and only Puerto Rico residents may purchase the Puerto-Rico focused UBS Funds, which creates a very limited amount of qualified buyers for the Funds. As a result, the illiquidity risk o f the UBS Funds was inherently high at all times. Further, the UBS CEFs recommended to the brothers are leveraged funds which generally may borrow up to 100% of their equity. That is, the UBS CEFs are permitted to hold $2 of securities for every $1 of capital invested in the funds. This leverage magnifies the risk of the UBS Funds. UBS and its financial advisor failed to explain these and other significant risks to the couple, according to the Statement of Claim.
The UBS Funds’ prices were relatively stable through the summer of 2013. Consequently, investors, including the elderly couple, generally had no appreciable losses and believed that the Funds were relatively safe investments. UBS and its financial advisor allegedly repeatedly recommended that the couple maintain their positions in the UBS Funds. In August and September 2013, the value of the UBS Funds declined dramatically, and by February 2014, the ratings agencies had downgraded Puerto Rico’s debt to “junk” status or speculative (below investment grade). As the Funds declined in value, the husband contacted his UBS financial advisor who told him not to worry and reaffirmed that the UBS CEFs were safe investments and could recover their value soon, according to the Statement of Claim. Unfortunately, the couple followed this advice to their detriment and have sustained losses of more than $280,000 in UBS CEFs.
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 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 UBS CEFS, were a client of UBS, or obtained a loan from UBS Bank, 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.