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UBS Puerto Rico Broker Named in 11 FINRA Arbitration Claims Involving Puerto Rico Municipal Closed-End Bond Funds

The headache for UBS Financial Services of Puerto Rico’s executives keeps getting bigger. According to FINRA’s BrokerCheck, one of the company’s Puerto Rico brokers, Jose Gabriel Ramirez, Jr., is currently named in 12 FINRA arbitration cases, 11 of which appear to involve Puerto Rico municipal closed-end bond funds.

As of the end of 2012, UBS Puerto Rico reported that it had packaged and sold $10 billion worth of its proprietary closed-end municipal bond funds known as the UBS Puerto Rico Family of Funds. The UBS Puerto Rico Family of Funds contains Puerto Rico municipal bonds and were marketed and sold exclusively to residents of Puerto Rico, according to marketing materials posted on UBS Financial Service’s website. The UBS Puerto Rico Family of Funds were allegedly sold to many UBS clients on margin or with funds generated through other types of personal loans through UBS Bank USA.

After Detroit filed for bankruptcy earlier this year, the Puerto Rico municipal bond market bottomed out. Unlike Detroit, Puerto Rico is unable to seek Chapter 9 protection because it is not a municipality. With the downturn in the Puerto Rico municipal bond market, the value of the UBS Puerto Rico Family of Funds fell in similar fashion.

In October, Massachusetts securities regulators announced that they had begun an inquiry into UBS Puerto Rico’s sales practices concerning Puerto Rico municipal bond funds. In its third-quarter earnings report, UBS estimated that it had incurred $20 million in trading losses and $21 million in credit losses in connection with loans backed by Puerto Rico municipal bonds.

According to the FINRA BrokerCheck report of Jose Gabriel Ramirez, Jr., 11 different UBS customers have initiated FINRA arbitration claims since October 29 alleging “overconcentration and misrepresentations involving closed-end funds.” The alleged damages in question range from approximately $1 million to $25 million, with one claim seeking an unspecified amount of damages. The total damages being sought for the 11 FINRA arbitration claims are in excess of $100 million.

Ramirez’s BrokerCheck also states that a customer complaint filed in 2012 alleging excessive trading remains pending.

According to InvestmentNews, UBS has placed Jose Gabriel Ramirez, Jr. on administrative leave and has indicated it will defend itself vigorously in the pending FINRA cases.

For more information on the decline in Puerto Rico municipal debt, click here.

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