Notice to Investors: UBS Closed-End Funds Dropped Another 20% in Value
Posted on Tuesday, November 14th, 2017 at 9:19 am
UBS’ Puerto Rico focused closed-end funds (“CEFs”) dropped more than 20% in October. Erez Law is still accepting cases for Puerto Rico and mainland based investors who held or hold these CEFs.
Puerto Rico suffers from long-term financial and economic deficiencies that rendered its credit increasingly more speculative. The deterioration of Puerto Rico’s financial condition culminated in its debt being downgraded to junk status or speculative (below investment grade). For the past several years, Puerto Rico has been struggling with compounding debt and economic decline. As a result, the value of Puerto Rico’s municipal tax-free bonds has considerably fallen. Since September 2013, when the steep decline in Puerto Rico bond values began, investors holding these bonds have suffered massive losses. In May 2017, Puerto Rico filed for bankruptcy protection from creditors in what is being described as the largest municipal bankruptcy filing in history.
UBS was the most dominant financial services firm in Puerto Rico. UBS often concentrated its clients’ portfolios in its proprietary closed-end funds invested in Puerto Rico bonds and in Puerto Rico bonds as well. The UBS CEFs were the single largest source of revenue for UBS. In a settlement with UBS, FINRA found that UBS failed to implement a reasonably designed system to identify and prevent unsuitable transactions in light of the unique economy of the territory. Retail customers typically maintained high levels of concentration in Puerto Rico assets and often used those highly concentrated accounts as collateral for cash loans. UBS-PR failed to monitor the combination of leverage and concentration levels in customer accounts to ensure that the transactions were suitable given the customers’ risk objectives and profiles. FINRA censured and fined UBS-PR $7.5 million for failures related to suitability of transactions in Puerto Rico closed-end fund (CEF) shares. FINRA also ordered UBS-PR to pay approximately $11 million in restitution to 165 customers who suffered losses on their CEFs.
After Hurricane Maria devastated the island in September 2017, Puerto Rico debt fell by 4%, the biggest weekly drop since July 2015. This sharp fall came after Governor Alejandro García Padilla announced that Puerto Rico would ask bondholders to take less than what they were owed. In October 2017, many UBS CEFs suffered a significant decline of approximately 20%, decreasing from around $10 to the $1-$3 range as of mid-November. The Tax-Free Puerto Rico Fund, Inc. was trading at $2.57 as of 11/8/17, while the Tax-Free Puerto Rico Fund II, Inc. was at $1.71, and the Tax Free Puerto Rico Target Maturity Fund, Inc. was $1.55. Additional funds of note are the Puerto Rico Fixed Income Fund, Inc. which went down to $1.92, the Puerto Rico Fixed Income Fund II, Inc. and Puerto Rico Fixed Income Fund III, Inc.at $2.18, the Puerto Rico Fixed Income Fund IV, Inc. at $3.12, the Puerto Rico Fixed Income Fund V, Inc. at $2.34 and finally the Puerto Rico Fixed Income Fund VI, Inc. at $1.58.
The UBS Puerto Rico CEFs include:
- 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 & US Govmt. Target Maturity Fund, Inc.
- P.R. Mortgage-Backed & US Govmt. 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.
- Puerto Rico Fixed Income Fund VI, Inc.
At Erez Law, many of our clients come to us because of our specialization in Puerto Rico bonds. We have filed more than 250 FINRA arbitration cases against large brokerage firms, including UBS, Merrill Lynch, Santander Securities, Morgan Stanley, Oriental Financial Services, Popular Securities and others, holding these firms accountable for dishonest investment advisory practices, unsuitable recommendations, misrepresentation, and over-concentration in connection with Puerto Rico bonds and funds.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, UBS Financial Services may be liable for investment or other losses suffered by its customers.
Erez Law represents investors in the United States including Puerto Rico for claims against UBS Financial Services financial advisors who recommended unsuitable Puerto Rico bonds. If you were a client of UBS Financial Services or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.