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FINRA Says UBS Must Pay $18.6M to Puerto Rican Couple Over Closed-End Funds

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UBS Financial Services and UBS Financial Services of Puerto Rico must pay nearly $18.6 million in compensatory damages, interest and attorneys’ fees to a prominent Puerto Rican attorney and his wife, according to a FINRA arbitration award released Monday.

Rafael Vizcarrondo, counsel for Fiddler, González & Rodríguez, P.S.C., and his wife Mercedes Imbert De Jesus submitted the arbitration complaint against UBS in 2014 over their investments in Puerto Rico closed-end mutual funds concentrated in Puerto Rico bonds. The couple’s complaint asserts that UBS put them in “unsuitable investments,” failed to supervise the broker, and breached their fiduciary duty, among other allegations.

One of the attorneys on Vizcarrondo’s team, Timothy J. Dennin of Northport, New York, called it the “largest award ever rendered” among similar arbitration cases regarding Puerto Rico closed-end funds sold by UBS.

According to Dennin, there may be as many as a thousand similar claims pending in Puerto Rico. Dennin himself has also been a part of similar arb cases against UBS.

“There’s been some very significant claims that have been filed on behalf of investors in FINRA arbitrations against UBS regarding the closed-end fund issues,” Dennin told ThinkAdvisor in a phone interview. “And this award is significant in that it is by far and away the largest award ever rendered in these thousand-plus cases.”

Dennin, who got involved “late in the game” when he was asked to try the case, said the award was also significant because the arbitration panel awarded “100% net out-of-pocket damages” based on third-party independent experts’ calculations, as well as interest and attorneys’ fees.

According to Dennin, third-party independent experts calculated the couples’ damages and determined the net out-of-pocket damages totaled $12.7 million.

UBS did not respond to a request for comment.

After a long trial from March through October, the arb panel awarded Vizcarrondo and Imbert De Jesus $12.7 million in compensatory damages, interest in the sum of $2.5 million accrued at the rate of 9% per annum from December 31, 2013 to March 13, 2016, and attorneys’ fees of nearly $3.2 million.

In the initial claim, which Dennin was not involved in, Vizcarrondo and Imbert De Jesus requested compensatory damages of not less than $19 million and fees paid of not less than $1.2 million.

Over a year ago, FINRA censured UBS Financial Services of Puerto Rico for shirking its supervisory responsibilities by failing to ensure the suitability of transactions in Puerto Rico closed-end funds and fined the UBS subsidiary a total of $18.5 million.

According to FINRA, the poor supervision persisted “for more than four years.” 

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