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Regulation and Compliance > Federal Regulation > FINRA

UBS to Pay $4.8M Over Puerto Rican Bonds

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What You Need to Know

  • This is just the latest award related to sales of risky Puerto Rican bonds by UBS and other Wall Street firms dating back to 2013.
  • UBS was ordered to pay a combined $13 million or so in two FINRA arb decisions in 2019.
  • The $4.8 million award was much less than the $15 million the claimants originally sought.

A regulatory arbitration panel has ordered UBS to pay two investors and a holding company $4.8 million over sales of USB closed-end funds that contained Puerto Rican bonds and the alleged unauthorized use of lines of credit and margin in the investors’ accounts.

The ruling from the Financial Industry Regulatory Authority panel was the latest award related to sales of risky Puerto Rican bonds as Puerto Rico effectively went bankrupt in 2013 and went on to default on the bonds.

In 2019, for example, UBS was ordered to pay about $5 million to investors over issues tied to Puerto Rican bonds and closed-end funds. A nearly $8 million arbitration award was ordered in May 2019.

In March of that year, 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.

In July 2019, a three-member FINRA arbitration panel ordered Morgan Stanley to pay Puerto Rican bond investors $3.3 million.

Commenting on the panel’s Thursday 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 firm added.

More Details on the Award

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.

The claimants alleged that UBS Financial Services and UBS Financial Services Inc. of Puerto Rico were guilty of 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 panel ruled that UBS and UBSPR were “jointly and severally liable” for breach of fiduciary duty and shall pay to the claimants $142,557.52 in compensatory damages, $4.65 million in compensatory damages and $9,767.45 for claimants’ expert witness fees.

Three members of the four-person arbitration panel ruled on the award. William D. Goren, the fourth member, however, partially dissented, saying he concurred with the panel’s award except for the damages for rescission.

(Photo: Bloomberg)


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