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 a 77-year-old retired professor who suffered more than $1 million in losses related to UBS/UBS-PR branded Puerto Rico Funds. Aldarondo & Lopez Bras is a separate law firm only licensed to practice law in Puerto Rico. The man allegedly told UBS financial advisors that he was a conservative investor, who was interested in generating income while preserving his retirement savings. Nevertheless, UBS and its financial advisors recommended a dangerous, high risk investment strategy wherein the man invested nearly all of his retirement savings in UBS CEFs, according to the Statement of Claim. UBS Financial Advisors also allegedly recommended that the retiree reinvest dividends he received from the UBS Funds. As a result, the man purchased yet additional shares of the Funds which only served to increase his investment in the Funds.
The UBS Funds are only available to Puerto Rico residents. Given the very limited amount of qualified buyers for the Funds, the illiquidity risk o f the Funds was always inherently exceedingly high. The UBS CEFs are leveraged funds. The UBS CEFs are generally permitted to borrow up to 100% of their equity. In other words, the Funds are permitted to hold $2 of securities for every $1 of capital invested in the funds. The UBS Funds pay to the difference between its borrowing cost and the interest received on its holdings to its shareholders. The distributions paid by the UBS Funds are tax-free.
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 UBS Funds’ prices were relatively stable through the summer of 2013. Consequently, investors, including the retired professor, generally had no appreciable losses and believed that the Funds were relatively safe investments. 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 in the Summer and Fall of 2013, the retired professor called and met with UBS Financial Advisors to raise concerns over their declining values. UBS Financial Advisors allegedly assured that man that this was a temporary fluctuation in the price of the Funds and that he should not worry. UBS Financial Advisors further assured the man by representing to him that his investments were secure and that he would not lose his investment, because his investments were “guaranteed by the Constitution of Commonwealth of Puerto Rico,” according to the Statement of Claim. The man relied upon this advice to his detriment.
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.