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.
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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.