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 |

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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.

Related articles

• UBS Fined $545 Million in Forex Scandal

• UBS Puerto Rico Investment Problems Expand 

• More Fraud Charges Against UBS

• UBS Puerto Rico Bond Problems

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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 call 212-509-6544 or send an email.