Sonn Law Group and Aldarondo & Lopéz Bras recently filed a claim against UBS Financial Services, Inc. and UBS Financial Services Inc. of Puerto Rico on behalf of an elderly couple who suffered approximately $6.5 million in losses stemming from closed-end funds invested in Puerto Rico debt (“CEFs”). Aldarondo & Lopéz Bras is a separate law firm only licensed to practice law in Puerto Rico. The couple were clients of Jose Gabriel Ramirez, Jr., also known as “the Whopper” and “Chave,” who allegedly not only recommended that the couple invest the majority of their liquid assets in UBS Funds, but also recommended that the couple reinvest the dividends from the Funds, and use the Funds to secure a credit line from UBS Bank which was used to invest in more UBS Funds. The couple currently owes approximately $3 million on the credit line. This investment strategy was not only highly risky, but also implicitly or explicitly illegal in its use of UBS Bank loans. Further, this is not an isolated incident of wrongdoing by Ramirez. Ramirez’s CRD reflects at least 12 other customer complaints of a similar nature for aggregate claims in excess of $50 million, and UBS has placed Ramirez on administrative leave.
UBS Puerto Rico was the primary underwriter of 23 CEFs with a total market capitalization of more than $5 billion. CEFs differ from traditional open-end mutual funds in that open-end funds offer and redeem shares at the fund’s net asset value (“NAV”). The NAY was determined by the managers of the fund. CEF prices can be at a discount or premium to the NAV. The majority of the UBS CEFs holdings are concentrated in Puerto Rico debt. These UBS CEFs are not traded on an exchange or quoted on any quotation service and are only available to Puerto Rico residents. UBS Puerto Rico has been the only or dominant secondary market dealer or liquidity provider for the UBS CEFs.
The Statement of Claim alleges that the couple, who have been married 49 years and have three children, became clients of Ramirez in 2006. The couple previously had shunned the stock market, and invested mostly in CDs. By 2008, the couple had consolidated all of their securities investments, which represented the vast majority of their liquid assets, with Ramirez. The husband and wife, both in their 70s, were conservative investors interested in preserving capital and generating income. The couple had no interest in speculation or high risk investments or strategies.
Notwithstanding the couple’s aversion to high risk investments and need to preserve their irreplaceable retirement savings, UBS/UBS-PR recommended an ultra-speculative strategy with devastating results. Ramirez recommended that the couple invest approximately $10.5 million in UBS CEFs, which dangerously concentrated the couple’s assets in high risk Puerto Rican debt.
Ramirez allegedly compounded the couple’s risk by recommending that they engage in an illicit loan scheme wherein the couple borrowed funds from UBS Bank secured by the UBS CEFs, and then used the borrowed money to invest in more UBS CEFs. This strategy was illicit, because the UBS Funds are not marginable and the strategy was a blatant circumvention of Regulation T of the Federal Reserve Board (“Reg-T”), which prohibits the use of margin in connection with the Funds.
Further, Ramirez’s alleged recommendation to use a UBS Bank loan was illicit, because it violated UBS/UBS-PR policy against using non-purpose loans from UBS Bank to invest in any securities, amongst other things. Additionally, UBS Bank was not licensed to do conduct business in Puerto Rico and any recommendation by a UBS/UBS-PR broker to borrow money from UBS Bank was implicitly or explicitly illegal, according to the Statement of Claim. In fact UBS Bank and UBS/UBS-PR acknowledged the illicit nature of the loans by converting all UBS Bank loans to UBS-PR loans in late December 2013. UBS Bank and UBS-PR would not have engaged in this unprecedented action had the loans been legitimate and in accordance with Puerto Rico law.
In May 2013, the husband wrote an email to Ramirez reflecting his interest in selling sufficient shares of the Funds to pay off his credit line, according to the Statement of Claim. Ramirez allegedly strongly recommended that the husband hold his Funds and refrain from selling. In another instance, the husband placed an order to sell UBS Funds with Ramirez’s assistant when Ramirez was out of town. Upon his return, Ramirez allegedly chastised the husband for selling any of the Funds.
Ramirez also allegedly recommended that the couple reinvest all of the dividends they received from the UBS CEFs. As a result, the couple purchased yet additional shares of the Funds which only served to increase their investment in the Funds. Additionally, by buying more shares of the Funds with their dividend distributions, the couple suffered additional losses as the value of those shares declined dramatically.
Ramirez allegedly failed to adequately disclose the illiquid nature of the UBS CEFs, the risks associated with the leverage used by the UBS CEFs, the risk of a reduction in the dividend payments of the Funds, the risks of concentrating the couple’s retirement savings in speculative Puerto Rico debt, and the credit risks associated with the UBS CEFs due to Puerto Rico’s dismal financial and economic situation amongst other things, according to the Statement of Claim.
Dozens of other investors have retained Sonn Law Group and Aldarondo & Lopéz Bras to pursue claims against the firms who sold the investments to them. While UBS dominates the island’s market through its UBS Family of Funds, some of which are co-managed with Popular Securities, Banco Santander (Santander Securities), Merrill Lynch, Raymond James, Oriental Bank and others also sold investments linked to Puerto Rico’s municipal debt. Claims for investment losses against UBS and other brokerage firms must be arbitrated through the Financial Industry Regulatory Authority (“FINRA”), the largest dispute resolution forum in the securities industry.
If you invested in UBS CEFS, were a client of UBS, or obtained a loan from UBS Bank, and have experienced financial losses, please call us at 866-507-2640 or complete our “contact form.” Sonn Law Group is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies.