UBS Puerto Rico Closed-End Fund Securities Lawsuit

A Financial Industry Regulatory Authority (FINRA) arbitration claim has been filed on behalf of investors who purchased certain UBS Puerto Rico closed-end funds. The funds were sold by financial advisors in Puerto Rico, especially those at UBS Puerto Rico, who allegedly represented the closed-end funds as safe investments that would pay a steady yield of income. Investors were also told that the Puerto Rico closed-end funds were not at risk because they were invested in secure municipal bonds backed by the Puerto Rico government. Some of these UBS Puerto Rico closed-end funds, however, have lost over half their value in a period of only 2 months, resulting in claims of UBS Puerto Rico closed-end fund securities fraud.

Investors who purchased UBS Puerto Rico closed-end funds report that UBS and other Puerto Rico brokerage firms sold the closed-end funds as safe investments. They based their risk assessment on the fact that the closed-end funds were invested in bonds that were backed by the Puerto Rico government.

Since 2000, however, the Puerto Rico government has run at a deficit whereby government expenditures have continued to outpace revenues. As a result, the deficit reportedly reached a record $3.306 billion. Additionally, as of June 2010, the unfunded public employees' retirement accounts were reported to have a shortfall of approximately $25 billion.

These events have called into question the creditworthiness of the Puerto Rico government, and as a result, the prices of some of the Puerto Rico bonds have dropped. Unfortunately, for purchasers of Puerto Rico closed-end funds that were invested in these bonds, the value of their investment has declined dramatically and many investors may have lost most of their retirement savings.

Additionally, as investors in PR closed-end funds have needed to withdraw money from their accounts for personal reasons, they have allegedly been advised to borrow money from UBS and other brokerage firms rather than selling shares of their UBS Puerto Rico funds. Such advice was risky because if the funds lost value, the investors would have lost even more than if they had just sold some of their PR fund shares. Given that the funds have lost value, some investors who did borrow from a brokerage firm have lost almost all of their investments. Some investors who borrowed money from credit lines offered by brokerage firms have reportedly received margin calls and even had their UBS Puerto Rico fund shares liquidated. Some have even ended up owing money to the brokerage firms.

The following Puerto Rico closed-end funds are included in the UBS securities lawsuit:

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

This is not the first time UBS PR securities have been accused of fraud. In 2012, the US Securities and Exchange Commission (SEC) accused UBS PR and two executives of fraud for actions related to closed-end funds. The SEC alleged the defendants made "misrepresentations and omissions of material facts to numerous retail customers in Puerto Rico" regarding the liquidity and pricing of CEFs. UBS settled the lawsuit for $26.6 million, but did not admit to any wrongdoing. The two executives denied the SEC's allegations, according to Bloomberg (4/4/12).

In October 2013, a judge dismissed an SEC complaint against UBS Puerto Rico and two executives, finding that the SEC did not prove its complaint against the defendants. The SEC alleged the defendants misled investors about the liquidity of the closed-end funds.

UBS Puerto Rico Closed-End Fund Securities Legal Help

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Last updated on May-7-15