SEEK Blog

UBS Warns Investors to Stay Away from Puerto Rico Bond Funds - Posted on AUGUST 20, 2015

In a complete turnaround, UBS AG (UBS) is now telling clients to step away from Puerto Rico bond funds. Reuters reports that in a recent letter, the firm's Puerto Rico arm told clients that they would be contacted shortly regarding alternative investments.

Reasons cited for the warning is that the funds can no longer be used as loan collateral in the wake of the U.S. territory's financial woes. Puerto Rico is currently $72 billion in debt. Concerns over its economy were not eased when Governor Alejandro Garcia Padilla recently asked the island's debt holders for help in postponing bond payments and restructuring the Commonwealth's debt.

Reuters also reported that in the letter to UBS customers - issued on July 13 - UBS said the firm would lower the collateral value given to every Puerto Rico closed-end fund share to zero. However, noted the news agency, despite the declaration of zero value for the funds' shares, the brokerage firm continues to list share prices on its website.

UBS Puerto Rico's decision to reject the funds as collateral shows just how high risk the firm now views these investments. According to Sam Edwards, a partner in Shepherd, Smith, Edwards & Kantas, who is currently representing dozens of Puerto Rico investors, "UBS came up with the scheme to use the Closed-End Funds as collateral for loans from UBS Bank since they were not eligible for margin loans. It was that leverage against already internally leveraged losses that causes some of the worst losses on the island. UBS is now pulling the plug on its own plan and effectively admitting this was a faulty idea and not only too risky for investors, but now, too risky for UBS, who designed the plan in the first place."

Once again, the evidence appears to support that UBS is protecting itself at the expense of its customers.

In other UBS news, the financial firm admitted in a recent filing that one of its former employees in Puerto Rico, financial adviser Jose Ramirez, is currently under criminal investigation by the U.S. Justice Department. Mr. Ramirez, who is nicknamed by many on the island as "Whopper," was let go from the firm last year.

Ramirez is one of the brokers that investors contend advised them to take loans from the firm to purchase Closed-End Funds from UBS, a direct violation. The broker-dealer also admitted that the Financial Industry Regulatory Authority and the U.S. Securities and Exchange Commission have made related inquiries about the way its clients used loans to purchase the UBS Closed-End funds. In the same filing, the firm said that so far, arbitrations and complaints stemming from its woes with Puerto Rico bonds have resulted in claimed damages exceeding $1.1 billion.

Other brokerage firms, including Banco Santander (SAN) and Banco Popular, have also come under fire for selling Puerto Rico bonds and related products to customers. Many investors sustained unnecessary and excessive losses after the bonds' value sharply declined two years ago.

If you have lost money in Puerto Rico bonds or related Puerto Rico bond funds, please contact our Puerto Rico muni bond fraud lawyers today. We represent investors in the U.S. and in Puerto Rico.

SEC Probes Whether Mutual Fund Managers Are Charging Investors Undisclosed Fees - Posted on AUGUST 15, 2015

The Securities and Exchange Commission is looking into whether Franklin Templeton, Oppenheimer Funds (OPY), J.P. Morgan Chase & Co. (JPM), and other mutual fund managers are charging investors for fund fees that have not been fully disclosed. While money managers are allowed to use some of investors' money to pay compensation to the brokers who sell a fund's shares, as well as for certain marketing purposes, the regulator wants to know whether firms are exceeding the allowed limits.

The Commission is trying to find out whether mutual fund companies have come up with ways to make extra payments to brokers by using investor assets to cover certain services, such as the consolidation of client trading records. The agency is worried that proper disclosure of these added fees are not being made to investors. The SEC is also wondering if brokers are more inclined to recommend funds that provide such additional payments, compelling them to prioritize profit over funds.

Fund companies have said that they do properly disclose fees for marketing. Oppenheimer, which is one of the companies that the SEC has investigated over this issue, has said that it doesn't bill mutual fund clients for recordkeeping costs but that the money comes from the firm.

Still, the regulator remains worried especially because money managers have had to work harder in the last few years to get broker-dealers to sell their products. Investors have been gravitating more toward index funds because these funds pull a smaller percentage from their assets for covering fees. Also, according to The Wall Street Journal, fund companies could theoretically circumvent the limits allowed for how much of an investor's assets a fund can spend on distribution and marketing.

Unfortunately, every year there are investors who sustain significant losses because of securities fraud and other kinds of broker misconduct. Please contact Shaw, Edwards, Emmerson, & Knight LTD LLP today to ask for your free case consultation with an experienced mutual fund fraud lawyer.