Firms Pay $226 Million, and Counting, in Puerto Rico Fund Cases
UBS Financial Services and other brokerage firms are not even half way through resolving damage claims tied to sales of collapsed Puerto Rican bonds and bond funds that have already cost them $226 million, according to a new study from the Securities Litigation & Consulting Group.
Out of 1,874 cases filed against the firms in arbitration since the fourth quarter of 2013, 42% have been completed through settlements or awards, according to the study.
The data collected by the expert-witness firm, which works on behalf of aggrieved clients who invested in closed-end bond funds and other investment vehicles that were aggressively sold as the island’s finances were failing, bode ill for investors in UBS.
The U.S. wealth management arm of the Swiss bank and its subsidiary in Puerto Rico has paid $142.6 million, or 63%, of resolved claim payments made since the fourth quarter of 2013. They are respondents or defendants in 76% of the 1,083 claims still pending and have prevailed in five of the 25 arbitration decisions, the study found.
Puerto Rico-based units of Merrill Lynch and Santander Securities, along with Popular Securities and Oriental Financial Services Corp whose parents are based in the territory, also have claims outstanding, according to the report.
A spokesperson at UBS Financial Services did not respond to a request for comment. Spokespeople for Merrill, Popular and Santander declined to comment. An Oriental spokesperson could not be reached for comment.
Of the $226 million paid to date, $162.5 million were awarded in settlements and $64.2 million in arbitration awards, according to the SLCG report.
‘[O]ur results may underestimate the actual number of cases filed, settled or still pending,” SLCG founder Craig McCann and two associates wrote in the report. That is because the data was collected from Financial Industry Regulatory Authority BrokerCheck and arbitration award filings under firm names, while a small number of claims are made solely against brokers.
Retail brokers aggressively sold closed-end bond funds, loans and securities amid a prolonged recession in the island territory’s economy that began in 2006. Some of the sales violations cited in the claims involved pressure on investors to borrow against their securities portfolios so they could purchase additional funds stuffed with municipal bonds issued by the island and underwritten by the firms.
The largest award in the Puerto Rico bond cases to date was for $18.5 million against UBS in December. It is one one of the rare arbitration decisions that the firm has filed to overturn in federal court.