The Securities Law Blog from SECLaw.com: Puerto Rico

Showing posts with label Puerto Rico. Show all posts

Monday, February 22, 2016

FINRA Panel Crushes UBS in Puerto Rico Case -

UBS is defending against hundreds of customer complaints and arbitration claims, collectively seeking $1.5 billion in damages, relating to its sale and promotion of Puerto Rican bonds and funds invested in those bonds.

Having already paid over $280 million in settlements for their disaster in Puerto Rico, UBS has just been slammed by another FINRA arbitration panel, and have been ordered to pay an investor $1.4 million which included $249,000 in attorney's fees.

Puerto Rico bonds were sold to investors in Puerto Rico and in the States as safe and low-risk, tax free, investments. However, with poor economic conditions in Puerto Rico, the bonds were actually near junk levels.

While UBS is thought to be the largest broker-dealer promoting these bonds, other bond funds contain these bonds and may be the cause of significant losses for investors.

If you lost money in Puerto Rico bonds, or in your stock or bond portfolio, those losses may be recoverable. Call 212-509-6544 to speak to an experienced securities attorney at Sallah Astarita & Cox, LLC to discuss your claims and potential recovery on a contingency basis.

Thursday, October 29, 2015

Puerto Rico Bond Saga Continues - FINRA Sanctions Santander Securities LLC

The inappropriate sales and marketing of Puerto Rico bonds is not limited to UBS. Recently FINRA ordered Santander Securities LLC to pay approximately $4.3 million in restitution to certain customers who were solicited to purchase Puerto Rican Municipal Bonds (PRMBs).

The firm was also ordered to pay restitution of $121,000 and make offers of rescission to buy back the securities sold to certain customers impacted by the firm's failure to supervise employee trading.

FINRA also censured and fined Santander $2 million for supervisory failures related to sales of PRMBs and Puerto Rican closed-end funds, and for failing to reasonably supervise employee trading in its Puerto Rico branch office.

FINRA found that between December 2012 and October 2013, Santander did not ensure that its proprietary product risk-classification tool accurately reflected market risks of investing in PRMBs, and failed to adequately supervise its customers' use of margin and concentrated positions in their accounts. According to FINRA, the firm's systems and procedures did not require a review or assessment of its product risk-classification tool, used by Santander's representatives when recommending products to customers, to determine whether it factored in the changed risks of investing in PRMBs. Most notably, Santander did not review or assess the tool's PRMB risk classifications following significant market events such as the December 13, 2012, Moody's downgrade of certain PRMBs to one level above junk. The day after the Moody's downgrade, Santander stopped purchasing PRMBs that its Puerto Rican customers wanted to sell and accelerated its efforts to reduce the firm's inventory of PRMBs.

During this same time period, Santander did not have systems or procedures in place to ensure that any comprehensive review of accounts with significant concentration in Puerto Rican bonds and closed-end funds was conducted to determine whether new purchases were suitable in light of existing positions. Additionally,

FINRA found that Santander failed to reasonably supervise employee trading in its Puerto Rico office with a view toward mitigating potential conflicts of interest where customer orders were filled through positions held in their own broker's personal brokerage account. Because Santander did not have adequate systems in place, approximately 400 of these types of transactions went undetected. In concluding this settlement,

Santander neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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Sallah Astarita & Cox, LLC continues its representation of investors regarding possible sales practice abuses in connection with the sale and marketing of various Puerto Rican bond funds. Sallah Astarita & Cox attorneys have represented parties in over 750 arbitrations, more than most law firms, and are all former regulators and brokerage firm attorneys. Call our office for a free consultation at 212-509-6544.

FINRA Sanctions Santander Securities LLC $6.4 Million for Supervisory Failures Related to Sales of Puerto Rican Bonds |

Tuesday, October 13, 2015

More Structured Product Claims vs UBS? UBS Will Pay $19.5 Million Settlement

My law firm has been investigating and prosecuting structured product cases for the last few years, many of them involving UBS. Those cases received a boost today as the SEC announced that UBS AG has agreed to pay $19.5 million to settle charges that it made false or misleading statements and omissions in offering materials provided to U.S. investors in structured notes linked to a proprietary foreign exchange trading strategy.

Structured notes are complex financial products that typically consiss of a debt security with a derivative tied to the performance of other securities, commodities, currencies, or proprietary indices. An example is Lehman Principal Protected Notes sold by UBS which were sold as low-risk investments.

The return on the structured note is linked to the performance of the derivative or the underlying security. According to the SEC, between $40 billion to $50 billion of structure notes are registered with the SEC per year, with many of those notes sold to relatively unsophisticated retail investors.

UBS, one of the largest issuers of structured notes in the world, agreed to settle the SEC’s charges that it misled U.S. investors in structured notes tied to the V10 Currency Index with Volatility Cap by falsely stating that the investment relied on a “transparent” and “systematic” currency trading strategy using “market prices” to calculate the financial instruments underlying the index, when undisclosed hedging trades by UBS reduced the index price by about five percent.

UBS settled the claims without admitting or denying the SEC's allegations, but the Commission claims that the case is " the first-of-its-kind case involving misstatements and omissions by a structured notes issuer" according to SEC Chair Mary Jo White. Andrew Ceresney, Director of the SEC's Division of Enforcement.is quoted as saying this “case demonstrates the importance of being truthful in offering materials to be used in the offer and sale of structured notes to retail investors,”

Our firm has been prosecuting claims against UBS and others, for the fraudulent promotion of structured products since 2010 when the issue first came to the forefront. We continue to do so and welcome inquiries from brokers and investors who have been harmed in these products.

According to the SEC’s order instituting a settled administrative proceeding:

UBS perceived that investors looking to diversify their portfolios in the wake of the financial crisis were attracted to structured products so long as the underlying trading strategy was transparent. In registered offerings of the notes in the U.S., UBS depicted the V10 Currency Index as “transparent” and “systematic.”
Between December 2009 and November 2010 approximately 1,900 U.S. investors bought approximately $190 million of structured notes linked to the V10 index.
UBS lacked an effective policy, procedure, or process to make the individuals with primary responsibility for drafting, reviewing and revising the offering documents for the structured notes in the U.S. aware that UBS employees in Switzerland were engaging in hedging practices that had or could have a negative impact on the price inputs used to calculate the V10 index.
UBS did not disclose that it took unjustified markups on hedging trades, engaged in hedging trades with non-systemic spreads, and traded in advance of certain hedging transactions.
The unjustified markups on hedging trades resulted in market prices not being used consistently to calculate the V10 index. In addition, UBS did not disclose that certain of its traders added spreads to the prices of hedging trades largely at their discretion.
As a result of the undisclosed markups and spreads on these hedging transactions, the V10 index was depressed by approximately five percent, causing investor losses of approximately $5.5 million.

The SEC’s order found that UBS acted negligently by misleading investors through material misstatements or omissions in the offering documents.

Without admitting or denying the SEC’s findings, UBS agreed to cease and desist from committing or causing any similar future violations, to pay disgorgement and prejudgment interest of $11.5 million, to distribute $5.5 million of the disgorgement funds to investors to cover the total amount of investor losses, and to pay a civil monetary penalty of $8 million. In determining to accept the offer, the SEC considered UBS’s substantial cooperation afforded its staff and certain remedial measures UBS implemented voluntarily.

Investors who have been harmed by this conduct, will need to pursue their claims with their own counsel. For further information, contact us at 212-509-6544 or by email.

Monday, August 3, 2015

UBS Puerto Rico Investment Problems Expand

UBS’ involvement in Puerto Rico investments continues to explode, as the customer arbitrations against the firm start to heat up. UBS has confirmed that FINRA and the SEC are not only looking into the recommendations of the funds, but now they are investigating the structure of the funds.

This week UBS reported that it is facing criminal investigations into the use of non-purpose loans to invest in closed-end funds, in violation of various agreements and policies.

In 2014 UBS settled allegations with the Office of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico (OCFI) in connection with OCFI’s examination of UBS’s operations from January 2006 through September 2013. Pursuant to the settlement, UBS contributed $3.5 million to an investor education fund, offered $ 1.68 million in restitution to certain investors and, among other things, committed to undertake an additional review of certain client accounts to determine if additional restitution would be appropriate.

UBS has been defending an onslaught of customer claims from investors in its Puerto Rican bond funds, who claim that the products were improperly structured, and/or were unsuitable for the particular investor. More information regarding the investigations and arbitration is here.

UBS has been settling the cases with its customers who are making allegations of unsuitable investments; breach of contract and fiduciary duty; negligence; and failure to supervise , as well as violation of Section 10(b) of the Securities Exchange Act, Rule 10b-5 of the Securities Exchange Commission, NYSE and FINRA rules, and the securities laws and other laws and regulations of Puerto Rico; and violation of Article 1802 of the Civil Code of Puerto Rico 31 Laws of Puerto Rico §5141, relating to the purchase and recommendation of UBS’s funds, including Puerto Rico AAA Portfolio Target Maturity Fund and a Note of the Employees Retirement System of Puerto Rico and a variety of Puerto Rico closed-end mutual funds concentrated in Puerto Rico bonds.

For the cases that UBS has not settled, it continues to lose the cases with arbitrators awarding damages to the injured investors. Just this week a FINRA arbitration panel in San Juan awarded $250,000 to investors against UBS.

Our firm is offering to review the statements, and details regarding these investments from investors and brokers who have been involved with these securities. Call us at 212-509-6544 to see if we can be of assistance.

Monday, October 28, 2013

SEC Examing Mutual Funds Re: Puerto Rico Bonds

The SEC is conducting nationwide, “limited scope examinations” of certain mutual funds that invest in Puerto Rico securities, according to a document obtained by The Bond Buyer and knowledgeable sources. On-site interviews are being conducted Thursday at an investment management firm with exposure to Puerto Rico through its mutual funds, according to a letter from the SEC’s San Francisco Regional Office. The letter was obtained by The Bond Buyer with the recipient’s name redacted.

The exams, which are being carried out by the SEC’s Office of Compliance, Inspections and Examinations and its regional offices, are intended to make sure the commission is up to speed on how much of Puerto Rico’s $70 billion of outstanding debt is held by funds in the U.S. and what those funds are telling their shareholders about the risks involved.

Our firm has been reviewing claims for investors regarding losses in bonds issued by Puerto Rico and in particular the sales practices of large broker-dealers, including UBS, who may have inappropriately marketed the funds. For more information on our work, visit our web site, or call us at 212-609-6544

For more information - SEC Probing Funds Holding Puerto Rico Debt

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information contact Mark Astarita at 212-509-6544 or at email us

Thursday, October 17, 2013

Puerto Rico Seeks To Calm Rattled Muni Bond Investors

Puerto Rico officials sought to soothe the fears of edgy investors Tuesday as the market continues to price risk into the tropical island’s widely held municipal bonds. “These are not just constitutional obligations, but also moral obligations,” said Governor Alejandro Garcia Padilla in an investor webinar, reaffirming the island’s intent to make good on its debt obligations.

South view of the building, located in the Pue...

Puerto Rico has roughly $70 billion in outstanding municipal bonds, which hold the lowest investment grade rating from major rating agencies. Its debt has long been held in municipal bond funds because its bonds are exempt from local, state, and federal taxes, but investor concerns have grown.

Another aspect of this bond debacle is marketing of the bonds by some brokerage firms, notably UBS. We are prosecuting and investigating claims against UBS for those practices, as well as other broker dealers, who may not have properly disclosed the risks in the Puerto Rico bonds.

For more information - Puerto Rico seeks to calm rattled muni bond investors

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Friday, October 11, 2013

Sallah Astarita & Cox Reviewing Potential Claims Against Other Brokerage Firms for Investments in Puerto Rico Municipal Bonds

Our office has learned that at least one State Attorney General is requesting information from multiple brokerage firms regarding the possible use, or overuse, of municipal bonds from Puerto Rico as part of their proprietary mutual funds. We are following those investigations for potential recovery for investors who have suffered municipal bond losses.

We are currently investigating claims against UBS in its Puerto Rico Bond debacle. That investigation is focused more on sales practices and the use of the bonds, and how same were presented to investors. We blogged about the UBS Puerto Rico Bond Funds earlier in the week.

This new, broader investigation, has a different focus, and involves multiple firms. Puerto Rico bond prices have been in a free fall amid renewed fears about the island's deficits, spending and high unemployment. The S&P Municipal Bond Puerto Rico Index is down 19 percent in 2013. The index is badly under-performing the S&P National AMT-Free Municipal Bond Index, which is down only 3.6 percent this year.

The bonds have been popular with portfolio managers because they are triple tax exempt - they are exempt from federal, state and local income tax in all US states. However, questions are now being raised as to whether the Puerto Rico bonds were over-used in the mutual fund portfolios, and whether investors were advised of the additional risks being incurred by the inclusion of the Puerto Rico bonds in the portfolio.

Investigators are looking into the disclosures by US brokerage firms as to the use of the bonds. It is believed that some funds have over 15% of their portfolio in Puerto Rico municipal bonds.

Investors who have suffered losses in a municipal bond portfolio are encouraged to contact our office for a no-obligation review of their holdings and potential claims. Email our office at info@sallahlaw.com, or call us at 212-509-6544.Related articles

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