New York Securities Lawyer Blog
New evidence suggests that UBS Financial Services Inc.’s (“UBS”) Puerto Rican office may have forced its brokers to sell the now infamous UBS Puerto Rico municipal bond funds. A recent Reuters article by Suzanne Barlyn published a previously unreleased Spanish language audio recording of former UBS of Puerto Rico chairman, Miguel Ferrer, directing UBS brokers to sell shares in the funds.
According to the article, in April 2011, years before the price of bond funds sunk, a group of UBS brokers were approached by management and asked why they were not selling more of UBS Puerto Rico municipal bond funds’ shares. In response, the brokers came forward with a list of twenty-two reasons why these funds were potentially bad investments for some clients; including, but not limited to, allegations that the funds suffered from low liquidity, excessive leverage, instability and an overconcentration of Puerto Rican government debt that was underwritten by UBS.
This was unacceptable to management and in a subsequent meeting, that was recorded by one of the brokers, Chairman Ferrer chastised the UBS brokers, saying, “[y]ou need to focus again on the attractive benefits of our funds and stop this nonsense that there are no products available—because if there are no products, go home, get a new job!” Ferrer stated that the brokers’ criticism of the UBS Puerto Rico municipal bond funds was “bullshit” and stated that they had almost $1 billion in client assets under management that were not generating commissions.
Chairman Ferrer has since left UBS Puerto Rico, however, in a comment to Reuters staff through his attorney, Mr. Ferrer maintained that he, “reminded the financial advisors both during and after the sales meeting [that] it was and is up to each financial advisor to recommend only those financial products that are suitable to their individual customers’ needs.” Additionally, UBS broker, Ramon Almonte, is recorded saying that it was important for brokers to try to dissuade customers from selling shares of the UBS Puerto Rico municipal bond funds. Some industry insiders have suggested that the recordings could become evidence in two whistleblower complaints involving the funds filed at the U.S. Securities and Exchange Commission (“SEC”).
These recordings represent another chapter of continuing difficulties facing UBS arising out of its marketing of the proprietary closed-end bond funds. Between March 2011 and October 2013, some of the UBS funds lost half to nearly two-thirds of their value. In 2012, UBS Puerto Rico paid a $26.6 million dollar fine to settle SEC allegations arising out of alleged sales practice violations regarding its 23 proprietary closed-end mutual funds. In the course of the settlement, the SEC published references to UBS documents allegedly entitled “Objective: Soft Landing,” which instructed UBS Puerto Rico employees to: satisfy UBS sale orders ahead of customer orders; conceal that UBS was reducing its inventory of the funds; and sell customer’s existing portfolio positions in order to purchase UBS bond fund shares. In June 2014, Reuters reported that UBS Puerto Rico was now the subject of a Federal Bureau of Investigation (“FBI”) criminal investigation into alleged suggestions by its brokers to take out loans from another UBS branch in order to purchase more shares of the UBS bond fund.
UBS now faces hundreds of FINRA arbitrations alleging approximately $900 million in damages regarding the sale of the UBS funds.
Lax & Neville LLP is investigating claims on behalf of investors regarding possible sales practice abuses in connection with UBS Financial Services Inc.’s sale and marketing of various highly leveraged closed-end bond funds to customers in Puerto Rico. Lax & Neville LLP has extensive experience in successfully prosecuting claims on behalf of customers and investors who have suffered losses, including experience in prosecuting claims involving leveraged funds. Additionally, Lax & Neville LLP has represented small broker-dealers, investment advisers, financial services professionals and securities industry companies in regulatory matters and securities and investment related litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.