SEC and FINRA Fine UBS Over Puerto Rico and Brokers $34 Million for Bond Fund Sales Practices

The Securities and Exchange Commission (SEC) issued a press release announcing that it sanctioned UBS Financial Services Inc. of Puerto Rico (UBS) and a former branch manager for failing to supervise a former broker who had customers invest in UBS mutual funds (UBS Funds) using money borrowed from a UBS affiliated bank. The SEC found that UBS and the bank prohibited using these loans to purchase securities but that the use of this practice exposed investors to losses and produced profits for the UBS broker. UBS agreed to settle the SEC’s charges being fined $15 million in disgorgement, interest, and penalties, for a fund for harmed investors. The former branch officer part of the SEC’s action, Ramiro L. Colon III (Colon), agreed to a settlement to pay $25,000 and be suspended from a supervisory role for one year.

In a Separate complaint the SEC charged Jose Ramirez, Jr. (Ramirez), a former registered representative in UBS’s Guaynabo branch office, stating that he increased his compensation by at least $2.8 million by having customers use proceeds from lines of credit with UBS Bank USA to purchase additional shares in the UBS Funds. The complaint stated that Ramirez evaded detection by instructing customers to transfer money from their line of credit to an outside bank account before depositing the funds into their UBS brokerage account and purchasing the UBS Funds. When the UBS Funds lost value as the Puerto Rico bond market declined customers were required to pay down a portion of the loans or liquidate their investments for a substantial loss.

In addition, the SEC’s stated that Ramirez misled customers about the safety of the UBS Funds and the risks of investing in them with borrowed money. Moreover, the SEC found that Ramirez lied to his branch manager when questioned about suspicious transactions in the UBS Funds.

In a related action and press release, The Financial Industry Regulatory Authority (FINRA) announced that it censured and fined UBS Financial Services Incorporated of Puerto Rico $7.5 million for supervisory failures related to the suitability of transactions in the firm’s Puerto Rican closed-end fund shares. In addition, FINRA ordered UBS to pay approximately $11 million in restitution to 165 customers who realized losses on their UBS Fund positions.

FINRA determined that for more than four years UBS failed to monitor leverage and concentration levels in customer accounts to ensure suitability given the customers' risk objectives and investment profiles. FINRA found that the firm did not implement reasonably systems to identify and prevent unsuitable transactions where retail customers maintained high levels of concentration in Puerto Rican assets and often times used those highly concentrated accounts as collateral for cash loans. FINRA found that UBS had knowledge of these common practices but failed to adequately monitor concentration and leverage levels.

Investors who have suffered losses may be able recover their losses through securities arbitration. The investment attorneys at Gana LLP are experienced in representing investors in cases where their broker has acted inappropriately. Our consultations are free of charge and the firm is only compensated if you recover.

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