Recording Shows UBS Pressured Doubtful Brokers to Sell High Risk Puerto Rico Funds

Reuters reports that in April 2011 brokers at UBS Puerto Rico had grave concerns about selling high-risk Puerto Rico-focused bond funds to their clients. The brokers created a list of 22 reasons why they weren’t selling more of the bond funds based upon their own views and input from clients, including the funds’ lack of liquidity, excessive leverage, oversupply, and instability, according to Reuters. Miguel Ferrer, then chairman of UBS Financial Services Inc., of Puerto Rico, rejected the brokers’ views. In a June 2011 audio recording obtained by Reuters, Ferrer met with brokers in San Juan, and told them they had to change their views or leave the firm.

“You need to focus again on the attractive benefits of our funds and stop this nonsense that there are no products available – because if there are no products, go home, get a new job!” Ferrer said, according to Reuters. Ferrer also stated that the team’s production had slipped “40-something-percent,” that “overall we are doing quite badly,” and it was “bullshit” for the brokers to state that they had no products to sell, according to Reuters.

UBS disputes the alleged 40 percent drop in production, and Karina Byrne, a spokeswoman for UBS, said the firm believed the funds they were selling were a sound investment that had provided investors strong returns in the past as well as tax benefits, according to Reuters.

While UBS declined to authenticate the recording, Ferrer, through his attorney, provided Reuters with his own English translation of his comments on the recording. Ferrer said in a statement reported by Reuters that UBS funds have provided attractive investment opportunities for certain investors at various times over the past 20 years. “However, as I reminded the financial advisors both during and after the sales meeting, it was and is up to each financial advisor to recommend only those financial products that are suitable to their individual customers’ needs,” said Ferrer, according to Reuters. Ferrer left UBS in July 2014 as part of restructuring.

Ramon Almonte, a senior broker who spoke at the 2011 meeting, told the brokers that Puerto Rico’s “fiscal and credit situation has gotten miraculously better” and that the firm had to cease “being an agent of fear, of panic,” according the recording obtained by Reuters. At the time, there had been some improvements in the outlook for Puerto Rico, including an upgraded credit rating by Standard & Poor’s; however, the improvement failed to last. On the recording, Almonte also allegedly says that it was important that brokers try to dissuade those wanting to sell the fund shares, according to Reuters. Almonte continues to work for UBS and in a statement reported by Reuters said that the Puerto Rico funds had been very good products for clients.

Reuters reported there are two whistleblower complaints involving the funds filed at the U.S. Securities and Exchange Commission. In June 2014, Reuters further reported that the FBI was investigating allegations that some UBS Puerto Rico clients were improperly told to borrow money from another UBS unit to buy the fund shares. Both the SEC and FBI declined to comment, according to Reuters.

In May 2012, UBS paid $26.6 million to settle SEC charges that UBS Puerto Rico and two of its executives made misleading statements to investors, concealed a liquidity crisis and disguised its control of the secondary market for the 23 UBS Puerto Rico closed-end funds. In entering into the settlement, UBS neither admitted nor denied the allegations. Ferrer and another UBS executive, Carlos Ortiz, fought the case and subsequently were cleared of wrongdoing by an SEC administrative judge in 2013.

In August and September 2013, the value of Puerto Rico bonds and the UBS Funds declined dramatically, and by February 2014, the ratings agencies had downgraded Puerto Rico’s debt to “junk” status or speculative (below investment grade).

Sonn and Erez, along with the Puerto Rico-based law firm of Aldarondo & Lopez Bras, represent over 170 customers of UBS that have significant losses in UBS proprietary bond funds, including:

Tax-Free Puerto Rico Fund, Tax-Free Puerto Rico Fund II, Tax-Free Puerto Rico Target Maturity Fund, Puerto Rico AAA Portfolio Target Maturity Fund, Inc., Puerto Rico AAA Portfolio Bond Fund, Puerto Rico AAA Portfolio Bond Fund II, Puerto Rico GNMA & U.S. Government Target Maturity Fund, Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, Puerto Rico Fixed Income Fund, Puerto Rico Fixed Income Fund II, Puerto Rico Fixed Income Fund III, Puerto Rico Fixed Income Fund IV, Puerto Rico Fixed Income Fund V, Puerto Rico Fixed Income Fund VI, Puerto Rico Short Term Investment Fund, Multi-Select Securities Puerto Rico Fund, UBS IRA Select Growth & Income Puerto Rico Fund, Puerto Rico Investors Family of Funds, Puerto Rico Investors Tax-Free Fund, Puerto Rico Investors Tax-Free Fund II, Puerto Rico Investors Tax-Free Fund III, Puerto Rico Investors Tax-Free Fund IV, Puerto Rico Investors Tax-Free Fund V, Puerto Rico Investors Tax-Free Fund VI, Puerto Rico Tax-Free Target Maturity Fund, Puerto Rico Tax-Free Target Maturity Fund II, Inc., Puerto Rico Investors Bond Fund I.

Sonn & Erez PLC is a nationally leading law firm that represents investors who are the victims of investment fraud or negligence. Sonn & Erez PLC represents individual and institutional investors in a wide variety of investment and securities cases. To learn more, please call us at 844-689-5754 or complete our “contact form.”

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