UBS Puerto Rico Investors Look to 2014

San Juan, Puerto RicoInvestors who lost money in UBS Puerto Rico closed-end funds likely hope that 2014 will be a better year than 2013. Thanks to the closed-end funds losing 16 percent or more in 2013, many investors are reportedly out a lot of money, with some investigating possible litigation or arbitration claims. Although UBS has offered to buy back shares of the UBS Puerto Rico funds, allegations have still been raised that the funds were marketed as being safer and less risky than they were.

Investors allege that in some cases the UBS Puerto Rico closed-end funds dramatically decreased in value in only two months, surprising them because they were reportedly told the funds were safe investments. They say they were told the funds were invested in bonds backed by the Puerto Rico government. Thanks to issues with Puerto Rico’s deficit and expenditures, the creditworthiness of the government is a source of concern, resulting in a price drop for some Puerto Rico bonds.

In addition to allegedly being given misleading information about the UBS Puerto Rico closed-end funds, investors may have been advised to invest in funds that were unsuitable for them given their age, financial situation, risk tolerance, income and ability to withstand losses. Or investors may have been advised to put a large amount of their money in the funds, resulting in over-concentration of investments in a risky asset.

Making the situation worse for some investors is that when they attempted to cash in their investment, they were reportedly advised to borrow money from an account holding those bonds, exposing the investors to even heavier losses. Other investors may have been told to borrow money so they could invest in the funds, compounding their losses. According to the New York Times (10/2/13), one broker was put on administrative leave by UBS after UBS received reports that he encouraged clients to use lines of credit to buy securities, violating UBS policy.

But according to the same report, UBS brokers receive commissions when securities are bought and also receive money when customers use their line of credit, meaning there was financial incentive for the brokers to encourage purchasing the securities on lines of credit.

Bloomberg (20/4/13) notes that a Financial Industry Regulatory Authority (FINRA) arbitration claim was filed in San Juan on behalf of Victor M. Gomez Jr. The claim alleges UBS did not properly explain its role in controlling prices in the secondary market.

UBS Financial Services has reportedly offered to buy back shares of its Puerto Rico Closed End Funds.