Conflicts of Interest
After extensive research and interviews, our legal team has concluded that undisclosed conflicts of interest exist between UBS Financial Services of Puerto Rico and its related entities which may have caused damage to Puerto Rico investors. The conflicts of interest include the manner in which the UBS Puerto Rico Family of Funds were managed by UBS Asset Managers and co-managed with Popular Securities. Additionally, our legal team has concluded that the recommended investments in individual Puerto Rico municipal bonds along with the recommended use of loans to purchase the above mentioned securities were the result of substantial conflicts of interest, including but not limited to some of the following factors:
- Offerings targeted to Puerto Rico residents;
- UBS was the largest underwriter of Puerto Rico Municipal Bonds;
- UBS manufacture of proprietary closed-end funds;
- Third-party financial relationships;
- Execution of municipal bond transactions;
- Compensation paid to financial advisors; and
- Relationships between lenders.
The Financial Industry Regulatory Authority (FINRA) recently focused its concerns about conflicts of interest in an executive summary, Report on Conflicts of Interest, which identified the increasingly disturbing trend in the manufacture and sale of complex products to retail investors. According to prospectuses and offering documents, the UBS Puerto Rico Family of Funds are “complex products” which invested in a pool of geographically concentrated municipal bonds margined up to 50%. According to FINRA, investors “may struggle to understand the features, risks and conflicts associated with these products.” According to FINRA, brokerage firms such as UBS Financial Services of Puerto Rico, the manufacturer of the UBS Puerto Rico Family of Funds, are “ in the best position, and are uniquely obligated, to identify the conflicts of interest that may exist at a product’s inception or that develop over time.” FINRA regulators continue to describe the obligations of brokerage firms, “Nonetheless, firms [UBS] involved in both the manufacture and distribution of products should maintain effective safeguards to alleviate pressure to prefer proprietary products to the detriment of customers’ interests.
UBS Financial Services of Puerto Rico has an affirmative duty to identify potential conflicts of interest to their retail customers which relates primarily to the pursuit of revenues by the brokerage firm and its financial advisors at their customer’s expense. FINRA rules designed to reduce the effects of any conflicts of interest relies on the full disclosure of conflicts of interest to customers as an important tool. UBS Financial Services of Puerto Rico has an obligation to disclose all relevant facts and these obligations are established in various statutes, regulations and case law. UBS has a duty under the anti-fraud provisions of the federal securities laws to disclose material information with Puerto Rico investors. Ultimately, UBS may only solicit investments suitable for Puerto Rico investors and financial advisors cannot recommend the UBS proprietary closed-end bond fund because it generates the highest fees and commissions for the firm.
Our team of lawyers can help you determine whether an investment loss is the result of a conflict of interest in a brokerage account. If an investor suffers losses as a result of a conflict of interest or other misconduct they may be able recover their losses in a FINRA arbitration claim.