UBS Ordered to Pay $33.5M in Puerto Rico Bond Settlement

SEC and FINRA allegations include supervisory failures

Both the Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority have handed a UBS affiliate in Puerto Rico orders to pay a settlement in the amount of $33.5 million, according to Law360.com. The charges against the bank include failure to supervise a representative who allegedly manipulated investors in order to used borrowed money to buy up closed-ended bond funds. Silver Law Group currently represents hundreds of families in Puerto Rico for their losses in UBS bond funds.

The SEC has recently sued Jose G. Ramirez Jr., based on allegations that he tricked a handful of investors into using lines of credit to purchase up to $50 million worth of closed-end mutual funds. These funds plummeted when Puerto Rico’s bond market dropped in 2013.

SEC enforcement director, Andrew Ceresney, stated, “Broker-dealers like UBS Puerto Rico must have effective procedures in place designed to detect misconduct by employees under their supervision. UBSPR lacked reasonable systems for ensuring compliance with the firm’s prohibition on loan recycling and to ensure that brokers adequately conveyed the risks involved in lines of credit.”

According to the report, UBS Financial Services Inc. of Puerto Rico has arranged to settle with the SEC. The bank agreed to pay $15 million in disgorgement, interest and penalties. FINRA also fined UBS $7.5 million for negligence in its alleged supervisory failures. In addition, FINRA has ordered UBS to pay $11 million to 165 clients that suffered losses as a result of Ramirez’s fraudulent actions. Allegedly, Ramirez made over $2.8 million in illegal profits and was terminated by UBS in 2014.

The SEC alleges that during his tenure with the bank, Ramirez knew the bank’s policies prohibited customers from purchasing securities using lines of credit extended by a UBS bank affiliate. To get around this policy, Ramirez purportedly convinced his clients to move money from their UBS line of credit to another unaffiliated bank, then told them to transfer it back into their brokerage account days later and purchase securities.

The SEC also alleges that Ramirez told clients that this did not violate any policies or restrictions. It is reported that he demonstrated this act by removing a dollar bill from his wallet and telling them: “If I give you this dollar and you bring [a different dollar] back next month, it’s not the same dollar.”

The SEC also says that Ramirez never informed his clients of the risks involved and when the Puerto Rican Bond market dropped in 2013, his clients were left to deal with $37 million in losses.

However, this may only be the tip of the iceberg following the collapse of many UBS sponsored closed-end bond funds concentrated in Puerto Rico municipal debt. UBS is currently the subject of hundreds of customer complaints and a class action alleging UBS improperly sold the funds to many investors.

The use of lines of credit, similar to a recommendation to use margin or other loans to purchase additional securities is generally considered speculative and only suitable for aggressive investors.

If you have found yourself suffering financial loss at the hands of UBS, Ramirez or any financial adviser, it is essential that you know your legal rights. You may be eligible for loss recovery through securities arbitration.

Silver Law Group has attorneys practicing nationwide with the appropriate skills and expertise to help you explore your legal options further. We offer free, no obligation consultations with our experienced securities arbitration attorneys. Each case is handled on a contingent fee basis; that is, you only have to pay if Silver Law Group wins your case. If you think pursuing loss recovery may be right for you, contact Silver Law Group today to further discuss your options.