A Financial Industry Regulatory Authority arbitrator on Monday ordered Santander Securities to pay $50,000 in compensatory damages to a 90-year-old widow of “relatively modest means” after the firm made unsuitable and highly risky investments in Puerto Rico bonds and bond funds on her behalf, according to FINRA.
Santander declined to comment Tuesday, one day after the FINRA Office of Dispute Resolution posted the award on the regulator’s website.
Arbitrator Eric Ross Cromartie found there were “significant issues with suitability and risk, given the concentration of” claimant Amparo Mendez Class’ “entire investment portfolio” in the Puerto Rico bonds, he said in the decision.
What’s more, Cromartie saw “no evidence that Claimant was ever advised to diversify her portfolio or sell any of her Puerto Rico bond-related holdings,” he said.
Although “tax advantaged investing can be quite beneficial to many investors, those advantages are significantly less for older investors of modest means,” he pointed out.
Causes of action asserted by the claimant against Santander included violations of duties owed to the client, negligence and breach of fiduciary duty, breach of contract, failure to review and update, unsuitability of investments, and violation of industry rules and standards of professional care.
This was not the first time that Santander or other firms have been sanctioned over Puerto Rican bonds that their reps had invested in on behalf of clients — often after it was clear the bonds were highly risky.
For example, in 2015, Santander was ordered by FINRA to pay about $4.3 million in restitution to certain customers who were solicited to purchase Puerto Rican municipal bonds.
In that earlier dispute, Santander was also ordered to pay restitution of $121,000 and make offers of rescission to buy back the securities sold to certain customers affected by the firm’s failure to supervise employee trading. The firm was also censured and fined $2 million for supervisory failures related to sales of PRMBs and Puerto Rican closed-end funds, and for failing to reasonably supervise employee trading in its Puerto Rico branch office.
More recently, a FINRA panel in San Juan, Puerto Rico, ordered Merrill Lynch to pay ex-Major League Baseball outfielder Angel Pagán and his wife, Windy Pagán, more than $2 million after a rep at the firm invested the couple’s money in unsuitable Puerto Rico municipal bonds and closed-end bond funds.
A regulatory panel last year said Morgan Stanley must pay Puerto Rican bond investors $3.3 million. Also last year, UBS was ordered to pay some $5 million to investors over issues tied to Puerto Rican bonds and closed-end funds. An arbitration award of nearly $8 million was ordered in May. In March 2019, Jose Ramirez, an ex-UBS advisor, was sentenced to a year in prison for taking $1 million from investors in Puerto Rico through a fraudulent scheme involving the use of credit lines to buy closed-end bond funds.
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