UBS Ordered to Pay $7.8 Million in Puerto Rico Arbitration
An arbitration panel on Monday ordered UBS Financial Services and its Puerto Rican brokerage subsidiary to pay $7.8 million to a married couple and their business, the latest in a long-running series of awards related to Puerto Rico bonds and bond funds that the broker sold as the territory headed toward the equivalent of municipal bankruptcy in 2013.The total represents more than the $5 million in compensatory damages that the claimants, Pedro F. Diez, Carmen F. Macias and Vissepo & Diez Construction Corp., sought in their amended claim statement. In addition to asserting the now-standard litany of fraud and breach of contract that violated suitability and other laws and Finra rules, they accused UBS of violating margin maintenance rules by encouraging them to borrow against their portfolio to purchase Puerto Rican securities.
Investors have brought 3,558 claims against broker-dealers since the Puerto Rico crisis, 68% of which were filed against UBS’s U.S. broker-dealer, according to Securities Litigation and Consulting Group, an expert witness firm that works with investors. The Swiss bank had resolved $1.9 billion of the $2.9 billion in claims that had been filed as of March 31, according to its first-quarter earnings report. It has 796 arbitration claims pending, according to SLCG.
In this week’s award, three Finra public arbitrators in San Juan awarded the couple $1.4 million in compensatory damages and ordered UBS to repurchase $6.1 million of securities in their individual and trust accounts. They also granted attorneys’ fees of $300,000 and costs of $100,000, which they said represented the investors’ opportunity costs “as if they had not engaged in a non-diversified portfolio.”
The arbitrators denied expungement requests UBS filed on behalf of the two brokers who worked with Diez and Macias.
A UBS spokesman declined to comment immediately on the award. At the end of 49 hearing sessions, UBS unsuccessfully moved to dismiss the case on the basis of Puerto Rico’s one-year statute of limitations, according to the award document.
UBS officials have said that prices on the bonds being repurchased as part of arbitrators’ rescission orders are rising. Bonds held by individual investors and other junior bondholders are expected to be valued at only 54% of principal under a restructuring that a bankruptcy judge approved in February.
In their initial complaint filed in August 2016, the couple sought $30 million of punitive damages.
Lawyers for the plaintiffs, Jeffrey Erez in Miami and Lloyd R. Schwed in Palm Beach Gardens, Florida, did not return calls for comment.