As a consequence of the Puerto Rico bond default, many innocent investors have lost a considerable amount of money. It did not have to be this way.
In far too many cases, negligent brokers and brokerage firms pushed investors into unsuitable bonds and funds that were made up of risky Puerto Rican municipal debt holdings.
Perhaps no brokerage firm was more involved in this than was UBS. The Swiss-based financial services giant is one of the largest brokerage firms that operates in Puerto Rico. In the last decade, this firm has sold hundreds of millions of dollars worth of complex debt products to investors both on the island and in the mainland United States.
One of these types of debt products, UBS’s Puerto Rico closed-end funds, have proved to be particularly destructive for many investors. It is now clear that in many cases, investors should have never been offered these products in the first place. Here, our experienced securities fraud attorneys discuss what investors need to know about UBS Puerto Rico closed-end funds.
UBS Puerto Rico Closed-End Funds: Understanding the Basics
A closed-end fund operates much more like an ETF than it does like a standard mutual fund. Closed-end funds are launched through an initial public offering (IPO), and they only have a set amount of shares that will be created. Notably, investors must be aware of the fact that these funds are heavily restricted in terms of who, and how, they can be sold.
Indeed, the UBS Puerto Rico closed-end funds were never listed on the normal trading exchanges. As a result, these products are highly illiquid. UBS was, at times, facilitating a secondary market for these funds, but the company had the power to stop doing so at any moment. This means that investors could be locked into very bad positions.
Why Did these Funds Lose So Much Value?
Unfortunately, while many financial advisors told their clients that UBS Puerto Rico closed-ends funds were safe, conservative investments, the reality was far different. These funds proved to be highly volatile, a possibility that brokers should have been able to anticipate. This is because the Commonwealth of Puerto Rico has had long-standing budget problems.
The island’s precarious financial position was made all the worse by the global financial crisis of 2008, after which Puerto Rico’s budget deficits began to explode. As such, brokerage firms should have been aware of the fact that holding the island’s municipal debt may not have been appropriate for conservative investors.
Downgrades and Defaults
At the end of 2012, Moody’s became the first credit rating agency to officially downgrade Puerto Rico’s borrowing status. Many more downgrades soon followed from other similar agencies. By the summer of 2015, Puerto Rico began to default on some bond payments. That initial round of defaults was certainly not to be the last.
Huge Losses for Investors
All of this economic turmoil has caused the value of Puerto Rican government bonds to fall sharply. As UBS Puerto Rico closed-end bonds are leveraged, their corresponding loss of value has been even steeper. In fact, in many cases, investors have lost more than 50 percent of their initial investment. Worse yet, for some investors who were encouraged by their broker to borrow to purchase these funds, their position has been called, causing the liquidation of their shares, thereby locking them into tremendous financial losses.
Wronged Investors Deserve Fair Compensation for Their Losses
In many cases, UBS brokers pushed investors into Puerto Rico closed-end bond funds that were highly inappropriate for their needs. Many UBS clients were pushed into these illiquid positions without full knowledge of what they were getting themselves into.
Worse yet, UBS did not ensure that its clients’ accounts were properly diversified. Brokers at the company encouraged investors, who were looking for passive, safe investments, to over-concentrate their assets in these highly risky, barely tradeable closed-end funds.
UBS also suggested that many of its clients should purchase closed-end funds using leverage. In other words, UBS recommended that investors borrow money to buy risky, unsuitable investments. This practice was completely irresponsible and it cost investors a tremendous amount of money; in some cases, it cost people their life savings.
Many claims have already been brought against UBS on the issue of closed-end funds. The brokerage firm has lost several multi-million dollar cases before FINRA arbitration panels. If you were a victim, you deserve fair compensation too.
Take Action: Contact Our Attorneys Today
At the Sonn Law Group, our investor losses attorneys have extensive experience handling Puerto Rico bond claims, including those involving UBS Puerto Rico bonds. If you sustained substantial losses, investing in a UBS Puerto Rico closed-end fund, we can help.
To request a free, no-obligation review of your case, please call us today at 844-689-5754 or email us directly through our website. From our primary office in Aventura, we represent wronged investors in Florida, Puerto Rico and throughout the United States.