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FINRA Orders UBS to Pay Three Investors $750K in Puerto Rico Bond Fraud Arbitration

By Jessica L. Mackaness, Esq. of Shustak Reynolds & Partners, P.C. posted on Friday, September 16, 2016.

 Awards for damages tied to Puerto Rico’s debt crisis continue to climb this year. FINRA recently announced that UBS must collectively pay three investors $750,000 in damages for losses they sustained from investing in UBS’s proprietary Puerto Rico closed-end bond funds and Puerto Rico bonds. The investors accused UBS of recklessness, fraud, and negligence, and sought to recoup commissions they paid the brokerage firm on top of damages to their portfolios. The FINRA arbitration panel in San Juan awarded the three investors $562,500, $30,000 ,and $157,500, respectively. A spokesman for UBS said that the firm was "disappointed" with the decision. 

Since the value of the Puerto Rico bonds plunged three years ago, thousands of investors have come forward seeking to recoup their losses through FINRA arbitration. While other firms in Puerto Rico have been accused of recommending Puerto Rico municipal bonds and other Puerto Rico-focused products even when they were unsuitable for many investors, UBS has been the largest target in customer complaints, arbitrations, and regulatory inquiries concerning the island. Many claimants allege inappropriateness by UBS brokers in their soliciting of Puerto Rico closed-end bond funds and bonds as well as misrepresentation of the risks of concentrating large positions in these volatile investments. 

Damages claimed against UBS alone are at least $1.5 Billion. More than $284 million of these claims have been settled or resolved in arbitration. In fact, just in March, the firm was ordered to pay over $470,000 to three investors who said their accounts were over-concentrated in the same Puerto Rico focused investments.The claimants in that case alleged negligent supervision and fraud. Similarly, UBS was ordered to pay a former television executive over $1,400,000 in the fall of 2015 for over-concentrating the former customer in UBS’s proprietary funds and misrepresenting the risks of those investments.

Shustak Reynolds & Partners, P.C.’s San Diego FINRA and SEC attorneys have extensive experience representing high-net-worth investors, registered representatives and investment advisors in a variety of securities-industry matters, including FINRA and SEC inquiries and enforcement proceedings. Contact us today for a confidential consultation.  

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