A regulatory arbitration panel on May 13 ordered Swiss giant wealth manager UBS Financial Services Inc. to pay $4.8 million to investors who lost money on Puerto Rican bonds.
The complaint, filed in San Juan, Puerto Rico, in July 2019, accuses UBS Financial Services and UBS Financial Services of Puerto Rico of breach of fiduciary duties, breach of contract, unsuitability and unauthorized trading, among other infractions.
The claims are connected to purchases of UBS closed-end funds containing Puerto Rico bonds as well as the allegedly unauthorized use of lines of credit and margin in the claimants’ accounts,
In their statement of claim, Eugenia Fidalgo Gutierrez, Mercedes Fidalgo Gutierrez and Fidalgo Gutierrez Holding Corp. requested compensatory damages of $15 million, plus interest, legal fees and other costs.
But the claimants were awarded $4,654,289 in compensatory damages for breach of contract and rescission (or repurchasing of the assets by UBS) and another $142,557.52 in compensatory damages for breach of fiduciary duty, according to the FINRA Arbitration Award.
“In the Statement of Claim, Claimants asserted the following causes of action: breach of fiduciary duties; breach of good faith and fair dealing; omissions; tortious acts; breach of contract; unsuitability; unauthorized trading; negligence and gross negligence; and rescission. The causes of action relate to the purchase of UBS closed end funds containing Puerto Rico bonds and the alleged unauthorized use of lines of credit and margin in Claimants’ accounts” was detailed in the FINRA Award.
Three members of the four-person arbitration panel ruled on the award.
Commenting on the panel’s decision, UBS issued a statement saying: “Although the arbitrators awarded less than the full damages claimants requested, UBS is disappointed with the decision to award any damages, with which we respectfully disagree.
“UBS notes that the decision in this case was based on the facts and circumstances particular to these individual claimants, and is not indicative of how other panels may rule with regard to other customers who invested in similar products,” the Swiss firm added.
While a number of brokerage firms have come under fire for selling these Puerto Rico securities, which plunged in value in 2013 when the bonds market collapsed and resulted in many investors suffering devastating losses, UBS is considered the greatest offender by many, according to Texas-based law firm Shepherd Smith Edwards & Kantas, LLP.
In July 2019, UBS was ordered to pay some $5 million to investors over issues tied to Puerto Rican Bonds and closed-end funds. A $7.8 million arbitration award was ordered in May 2019.
In March of that year, Jose Ramirez, an ex-UBS advisor was sentenced to a year in prison for advising his clients to improperly borrow money in order to invest in UBS Puerto Rico bond funds. The sales generated approximately $1.2 million in commissions.
At its peak, UBS had the largest wealth management business in Puerto Rico, representing an estimated 20,000 households.