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Investors’ Losses in the Puerto Rico Closed-End Municipal Bond Fund Investments Sold and Marketed by UBS have Risen to Billions of Dollars

As we have previously blogged, numerous lawsuits have been filed against UBS Financial Services Inc. (“UBS”) for the sale and marketing of highly leveraged, risky closed-end bond funds that were heavily invested in Puerto Rican municipal debt. It has now been reported that investors’ losses in the Puerto Rico closed-end municipal bond fund investments have risen to billions of dollars. According to recently reported research, nineteen (19) closed-end local municipal bond funds sold by UBS brokers in Puerto Rico lost $1.66 billion in the first nine months of 2013, with the biggest losers being UBS Puerto Rico funds that had large holdings of municipal bonds that were originally brought to market with UBS as the underwriter.

Edward S. O’Neal, a principal with the Securities Litigation & Consulting Group, a financial economics consulting firm based in the Virginia, recently stated, “[t]hese funds were sold almost exclusively to citizens of Puerto Rico, and approximately 70% of the portfolios of these funds were invested in Puerto Rican securities.” He further stated that, “the percentage losses over the past year range from 38% to 48% for the worst performing UBS PR funds.” In a recent interview, Mr. O’Neal indicated that overconcentration in the securities of two Puerto Rico municipal issuers, the Employees Retirement System and the Sales Tax Financial Corp., was the downfall of many of the UBS Puerto Rico funds. Specifically, he stated that the UBS Puerto Rico closed-end funds that lost the most were “concentrated in issues they underwrote.” UBS is, of course, contesting Mr. O’Neal’s assertions.

Seemingly, UBS’s misrepresentations to its investors concerning the Puerto Rico family of closed-end municipal bond fund investments is not isolated to the financial advisor, but rather focus on UBS’s marketing and sale of the funds to investors. As more information is revealed, it is becoming apparent that UBS’s closed-end municipal bond fund investments is one of a long line of product problem cases generated by Wall Street firms, such as, cases involving auction rate securities, Regions Morgan Keegan Select bond funds, Lehman Brothers Principal Protected Notes, Citigroup MAT Funds and the Aravali Fund. Here, like in the above referenced and other product problem cases, UBS’s misrepresentations concerning the Puerto Rico closed-end municipal bond funds are evidently a broad based and firm wide problem.

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 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 nationally represented small broker-dealers, investment advisers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.

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