Finra Adds $1.7 Million to UBS Wealth’s Growing Puerto Rico Tab
Arbitrators ordered UBS Financial Services and a subsidiary in Puerto Rico to pay almost $1.7 million to clients to resolve two more complaints related to the Swiss banking giant’s sales of closed-end bond mutual funds invested in Puerto Rican municipal debt.
The rulings are the latest in a string of arbitration and legal decisions that has so far cost UBS $374 million in settlements and arbitrations, with more than $1 billion of additional claims still outstanding, according to the bank’s annual report released on March 18.
In a decision posted on the Financial Industry Regulatory Authority’s arbitration website on March 21, UBS was told to pay $1.2 million to Lymarie Rivera Diaz and Nelson Ramos Irizarry, a couple in their 50s who their lawyer said own a dairy farm in Puerto Rico. They alleged securities fraud related to the high concentration of failing government bonds in the closed-end funds and to the loans they were urged to take from the bank to increase their purchases, according to the arbitration award.
The couple had sought a much higher award of almost $9 million, including $4 million of punitive damages. The arbitration panel awarded no punitive damages.
“I am pleased because we won, but I am somewhat disappointed, too,” said Francisco Pujol, of the Pujol Law Office in San Juan, who represented the plaintiffs.
In a second case dated March 24, Finra arbitrators ordered UBS to pay around $470,000 to three other investors who also said their brokers had saturated their portfolios with closed-end Puerto Rico bond funds. The award was within the $455,000 to $570,000 range that the investors, Obdulio Melendez Ramos, Ramon Velez Garcia and Carlos L. Merced, had requested.
UBS denied the investors’ claims in both cases.
A UBS spokesman did not respond to a request for comment on the rulings.
In the Diaz and Irizarry case, the Finra arbitration panel ordered UBS to repay the $156,443 balance on the nonpurpose loan they borrowed to increase their bond fund investments, but it is too early for UBS to celebrate that part of the decision.
That is because the couple has joined a class-action complaint pending in a Puerto Rico state court asking for a stay on repayments of the loan they were encouraged to buy, the arbitration decision said. It noted that it could not rule in the couple’s favor out of fear that the couple would be double-dipping, should they prevail in the class-action litigation.
UBS’s closed-end funds performed well for about two decades, but began a deep slide in August 2013, as the government of Puerto Rico hurtled toward insolvency.