Puerto Rico’s Debt Crisis Hits Home With Local Investors

Promises of safe bond investments result in lost nest eggs

High returns and tax-free income and a government that could not default on its debt. If you think that sounds like a pretty sound investment, so did many who bought Puerto Rico bonds and leveraged bond funds sold by Swiss bank UBS.

According to a recent article in the New York Times, “Puerto Rico officials now say the government cannot afford to pay its $72 million in debt.” And, for the first time since the island became a United States protectorate 117 years ago, the government defaulted on a bond payment.

While this is bad news for investors from the mainland United States who invested in Puerto Rico bonds, it is especially bad news for tens of thousands of local Puerto Ricans who trusted their nest eggs to the bonds. Over 20 percent of the government debt is owned by local investors, ordinary people – doctors, teachers, homemakers, seniors, youths just starting out – whose savings are now in shambles.

So how did ordinary Puerto Ricans expose themselves to such risk? They were allegedly told the bond investments were safe. Like so many others, one class action plaintiff alleges he trusted his broker at UBS who said this was the best place to put his money. “They told me this was safe, that the legal protections to repay the bonds were strong.”

According to the article, this particular investor moved $100,000.00 from his savings to the bonds funds in 2012 and, in just a matter months, the $100,000.00 was gone. His plans to retire in the coming years and settle in the mainland US, which would put him closer to his children, had to be put on hold indefinitely because he will have to continue working.

During a time when the warning signs of a coming crisis were evident, local residents were being sold government bonds. According to the article, specially structured bond funds that required two-thirds of their holdings to remain in Puerto Rican investments were “an easy sell for brokers working for large banks like the Swiss bank UBS and Banco Popular of Puerto Rico because they were exempt from local taxes.”

UBS is being sued in Federal District Court in New York by a group of Puerto Rican investors. The suit reportedly claims that the bank directed the individuals within the group to invest in these funds due to high fees being earned by its brokers. It also purports that not only were UBS brokers being paid by these individuals to purchase the bonds for their investment account, but also that “UBS’s investment bankers were being paid by the government to sell the bonds.”

UBS is the largest Wall Street bank in Puerto Rico. Over the last decade, UBS of Puerto Rico packaged and sold its own proprietary bond fund to investors throughout Puerto Rico. Many of these investors allege UBS created these alternative investments under false pretenses, telling investors the funds offered a low risk alternative when, in reality, the structure of the funds were highly leveraged and speculative.

Silver Law Group currently represents over 100 families in securities arbitration claims against UBS alleging that the UBS bond funds were misrepresented to the investors and that many investors were overconcentrated in the funds. While many claims are still being investigated, some investors have already received awards – including one couple who was awarded $250,000 by FINRA.

If you have suffered financial loss due to the actions of UBS, securities arbitration is your best hope for recovering them. Trust the firm already fighting for the rights of Puerto Rican families. Contact Silver Law Group today.