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Investors Continue To Suffer Losses in UBS Puerto Rico Bond Funds After Puerto Rico Municipal Bonds Downgraded to Junk Status

Investors Who Held UBS Puerto Rico Bond Funds May Recover Losses Through FINRA Arbitration

The Standard & Poor’s, Moody’s and Fitch’s credit ratings agencies downgraded Puerto Rico’s general obligation bonds and other Puerto Rico municipal bonds to non-investment grade, junk bond status. Puerto Rico investors have experienced huge price declines in UBS Financial Services of Puerto Rico (“UBS”) proprietary closed-end bond funds either managed or co-managed by UBS Asset Managers. UBS Financial Services of Puerto Rico and its financial advisors recommended UBS Puerto Rico Fixed Income Bond Funds and UBS Puerto Rico Investors Tax Free Funds to investors and characterized the bond funds’ investment objective as current income consistent with the preservation of capital. Now, Puerto Rico investors learn of their financial peril and risks of loss after the recent Puerto Rico credit rating downgrades which caused even greater losses.

UBS Financial Services of Puerto Rico and its financial advisors recommended that Puerto Rican residents invest the majority of their brokerage account assets in UBS’ proprietary closed-end bond funds. To enhance the yield to investors, UBS Asset Managers had the ability to leverage the investments made in the bond mutual fund portfolios up to 50% of the value of the underlying portfolio. The result was a marginal increase in income for Puerto Rican investors at the risk of potentially catastrophic losses should the value of the underlying assets, geographically concentrated in Puerto Rico, decline in value due to the high levels of margin in the fixed-income portfolios. In many instances, UBS encouraged investors to utilize loans or lines of credit to make investments in the UBS Family of Puerto Rico Funds, resulting in greater account losses. As a result of these risks, UBS Asset Managers had an obligation to properly manage the portfolio including effective hedging strategies to protect the fixed-income portfolios concentrated in securities issued in Puerto Rico.

In light of these developments, Silver Law Group and Dimond, Kaplan & Rothstein, PA (“law firms”) have joined together with local counsel in Puerto Rico to assist investors who hold UBS Managed Puerto Rico Bond Funds to consider what recourse is available to recover their investment losses. Many investors were advised by UBS Financial Service of Puerto Rico and its financial advisors that investments in UBS Puerto Rico Bond Funds were stable and safe investments with predictable investment returns. According to the Financial Industry Regulatory Authority (FINRA), unsuitable investment advice, geographic concentration in Puerto Rico bonds, failure to supervise the activities of financial advisors, and fraudulent misrepresentations and omissions of material facts are among the claims that are available to investors to recover their losses with a securities arbitration claim filed with FINRA. Investors also may be able to pursue claims for violations of the Puerto Rico Uniform Securities Act by UBS Financial Services of Puerto Rico.

Our team of lawyers includes: Scott Silver, who is the current chairman of the Securities Litigation Group of the American Association of Justice; and Jeffrey Kaplan, who serves on FINRA’s National Arbitration and Mediation Committee.

If you have questions about your legal rights, or have been the victim of investment fraud, please contact us!