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Articles Posted in UBS Puerto Rico Bond Funds

Silver Law Group is investigating claims against UBS Financial Services (“UBS”) New York-based stockbroker James Dillon (“Dillon”). According to the Financial Industry Regulatory Authority (“FINRA”), Dillon’s FINRA BrokerCheck record shows a pending customer dispute alleging claims of unsuitable concentration in connection with the purchase of Puerto Rico municipal bonds. The damages alleged in the complaint are $500,000.

Silver Law Group is representing investors in claims against UBS and several other brokerage firms relating to the sale and concentration of portfolios in Puerto Rico municipal bonds. Brokers recommended Puerto Rico bonds due to their high coupons without disclosing to investors the risks associated with the Puerto Rican economy and the on-going recession on the island. Many elderly and conservative investors lost substantial portions of their portfolios when the Puerto Rico municipal bonds collapsed in value causing many to lose their entire retirement savings.

Silver Law Group is representing customers of brokerage firms in securities arbitration claims for losses in Puerto Rico municipal bonds alleging that the customers were misled about the risks of the bonds, overconcentration, breach of fiduciary duty, and excessive trading.

Investment broker Angel Edgardo Aquino-Velez (CRD#: 2687333) is no longer working as a broker, according to FINRA. Velez was previously registered as a broker, with the last place of employment listed as Morgan Stanley (CRD# 149777). His name is also listed as “Angel Edgardo Aquino,” “Angel E AquinoVelez” and, “Angel Edgardo AquinoVelez.” Velez worked for Morgan Stanley from 2010 through 2017, for Merrill Lynch from 2006 through 2009, and UBS Financial Services, Inc./UBS Financial Services, Inc. of Puerto Rico from 2000 through 2006. Since leaving Morgan Stanley in 2017, Velez is not listed as working as a broker, or in any financial services capacity requiring registration.

Silver Law Group represents other investors in claims against Morgan Stanley relating to Angel Aquino. Since 2001, Velez has had a number of customer disputes have been filed against him. Many were settled by Merrill Lynch during his tenure of employment. FINRA arbitration claims filed during Velez’s tenure at Morgan Stanley are still open, with the most recent involving “unsuitability with respect to Puerto Rico investments,” from 2013 to 2017, among other things (“inter alia.”) No money damages are specified in the latest dispute, but previous disputes dating back to July of 2016 have a combined outstanding total of $17,559,000. Morgan Stanley agreed to pay one customer dispute the amount of $80,000, resolving a securities arbitration of unsuitability with respect to the Puerto Rico closed-end fund investment – 2012 to 2013.”  Customer complaints include “unsuitability” and “misrepresentation” in relation to investments Velez was involved with.

Contact Our Firm if You’ve Invested with Angel Aquino

Silver Law Group is pursuing securities arbitration claims for the sale of leveraged closed-end bond funds by brokerage firms such as UBS Financial Services, Inc. of Puerto Rico, Popular Securities, LLC, Santander Securities, LLC, Oriental Financial Services Corp., and Merrill Lynch.  The investigation involves the sales practices of these brokerage firms concerning the failure to comply with FINRA rules and regulations in terms of the recommendation to buy and/or hold the leveraged closed-end bond funds which may result in a legal cause of action filed in a FINRA arbitration claim.

It has been estimated that investors in the closed-end funds sold by UBS Financial Services, Inc. of Puerto Rico lost $1.66 billion during the first nine months of 2013.  Though UBS maintained the majority of market share, Silver Law Group also represents investors that maintained accounts at Popular, Santander, Oriental, BBVA and Merrill Lynch.  The Puerto Rico government is allegedly defaulting on a $422 million debt payment due on May 2, 2015, and indicating it will default on the $2 billion payment due on July 1, 2016.  As a result, the prices of the leveraged closed-end bond funds may continue to drop in value and investors may suffer additional losses.

If you invested in closed-end funds or believe you were sold other unsuitable investments related and/or tied to Puerto Rico, you may be entitled to recover some of your investment losses.  Please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345 to speak to an attorney to find out how we may be able to help you recover some of your investment losses.

A former UBS broker recently won a FINRA arbitration claim against UBS Financial Services for misleading him and his clients about the risks associated with structured notes tied to Lehman Brothers Holdings, which suffered significant losses in 2008.  Silver Law Group primarily represents investors in claims against UBS and other brokerage firms.  However, this award deserves attention because it highlights a fundamental flaw in Wall Street’s business model.  UBS created a system to use its sales force to sell millions of dollars in Lehman Brothers debt.  However, faced with undesirable evidence of Lehman’s financial problems, UBS knowingly chose to not inform its financial advisors or retail clients about the problems.  Put differently, this was a “top down” problem because the misconduct was by UBS senior management.  We are seeing the same set of facts in claims by investors against UBS in Puerto Rico, where UBS senior management served as the biggest supporters of proprietary UBS bond funds and UBS placed no restrictions on financial advisors or on the concentration levels in a customer’s portfolio.

The FINRA arbitration panel awarded $4 Million in compensatory damages, $1 Million in punitive damages and $335,000 in attorneys’ fees and costs, specifically finding UBS had “deliberately prevented the distribution of material information about Lehman Brothers sinking financial condition and continued to recommend the sale of Lehman Brothers [Notes] despite clear evidence of the company’s rapid decline.”  The panel also ordered that the 39 complaints filed against this broker be erased from his record.

The backdrop leading to this award is eerily similar to what is happening today at UBS in Puerto Rico (“UBS-PR”).  UBS-PR aggressively pushed the sale of closed-end bond funds (CEFs) involving Puerto Rican debt which were proprietary to UBS.  UBS allegedly misled the majority of its brokers and clients concerning the risks associated with CEFs.  UBS is also alleged to have withheld negative information about the CEFs from its brokers and its clients, thereby preventing a full understanding of Puerto Rico’s deteriorating economy and the effects that decline would have on the leveraged and illiquid CEFs.  Could it be that the majority of UBS-PR brokers who now find themselves facing numerous customer complaints were simply following the instructions given by UBS and doing what they were trained to do—sell UBS recommended products?

The Government Development Bank for Puerto Rico, the Puerto Rican government agency responsible for its debt deals has hired a well-known debt restructuring firm leading many in the financial industry to speculate that Puerto Rico is preparing to revamp its municipal debt.

According to news reports, Puerto Rico officials refused to say whether the firm was hired as part of an effort to restructure the commonwealth’s debt.  However, the firm has represented many financially challenged countries such as Greece, Iraq, Iceland and Argentina.

Puerto Rico’s Constitution prohibits it from filing for federal bankruptcy protection like Detroit or other United States municipalities have done in the past.  Accordingly, the prospect of restructuring Puerto Rico’s debt has caused uncertainty among Puerto Rico bond investors as to the effect such will have because there is no template or precedence to follow.  As Puerto Rico appears to be seeking to reduce its debt load, Puerto Rico investors worry that a restructuring of the debt could result in additional losses to the large losses already suffered on their bond holdings or the closed-end funds held by many of Puerto Rico residents.

In February 2014, Bond Buyer magazine featured a story about Silver Law Group’s representation of many Puerto Rico investors in FINRA arbitration claims against UBS of Puerto Rico for losses in leveraged bond funds.  The article concluded by highlighting Silver Law Group Managing Partner Scott Silver’s concerns that FINRA was not equipped to handle the large number of claims which could easily be anticipated against UBS for selling this complex alternative investment which lost more than 60 percent of its value last fall.

Last week, FINRA finally took public action to address the issue by recognizing the problem and temporarily halting all claims against UBS Puerto Rico while FINRA creates a protocol to administer the cases.  Silver Law Group urges FINRA to quickly address these issues and avoid unnecessary delay.

FINRA and the securities industry force investors to arbitrate all disputes with a broker-dealer through an arbitration clause in the customer agreement.  However, FINRA arbitration is promoted as a fast, inexpensive process for deciding disputes.  Many investors are now frustrated by a system which cannot administratively manage their claims.  Investors have suggested, amongst other solutions:

UBS Financial Services of Puerto Rico has come under the scrutiny of a leading bond market commentator, The Bond Buyer in yesterday’s article titled, UBS Puerto Rico Faces Surge in Arbitration Claims.  Standard & Poor’s, Moody’s and Fitch’s credit ratings agencies downgraded Puerto Rico’s general obligation bonds to junk bond status, which is below the investment grade status given to most U.S. municipal bonds.  The downgrade was predicted by UBS Financial Services’ (UBS) recent report Municipal Brief: Puerto Rico Credit & Market Update dated January 29, 2104.  This prediction came long after UBS Financial Services of Puerto Rico branch offices mobilized its sales force with a targeted marketing campaign to sell the UBS Puerto Rico Family of Funds to investors.  A market revelation that is too late for those Puerto Rico investors’ whose portfolios are now heavily laden with UBS’ proprietary closed-end funds geographically concentrated in Puerto Rico bonds.

As mentioned in our previous blog post, “The removal of Puerto Rico municipal bonds from the universe of ‘investment grade’ municipal bonds could potentially result in increased sell orders from municipal bond portfolio managers driving prices lower.”  Further price declines in Puerto Rico municipal bonds has already occurred and the effects for many UBS closed-end funds, including UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds, has been an average drop in many of the funds’ net asset values (NAV) of another 5% since the announced credit ratings downgrades.

Scott L. Silver, managing partner of Silver Law Group, has brought clarity to many Puerto Rico investors who have contacted his law firm.  These investors have a better understanding of the Financial Industry Regulatory Authority (FINRA) securities arbitration process.  The bond buyer reported, “his firm has filed about three dozen claims for FINRA arbitration in the past several weeks.”  According to the Bond Buyer interview Mr. Silver pointed out that FINRA “rules require dealers to supervise the activities in customer accounts” and said “his clients’ losses may be attributed to a failure by UBS to supervise their financial advisors.”

The Standard & Poor’s and Moody’s credit ratings agencies downgraded Puerto Rico’s general obligation bonds to BB+ and Ba2, respectively, which is below the investment grade status given to most U.S. municipal bonds. The downgrade had been prognosticated by many brokerage firm research analysts, including UBS Financial Services (UBS) over the last several weeks. UBS Financial Services’ recent report Municipal Brief: Puerto Rico Credit & Market Update dated January 29, 2104, predicted downgrade and additional problems for Puerto Rico Municipal Bond Investors. The reported sentiments of UBS Wealth Management research analysts Thomas McLoughlin and Kristin Stephens are clear, “The probability of a downgrade of the Commonwealth’s GO and related bond ratings by all three ratings agencies into the non-investment grade category by the end of the fiscal year (30 June 2014) is high. Given the myriad obstacles facing Puerto Rico, we believe that at least one rating agency will take such an action within the next 30 days.” UBS research opinions were also consistent with recent moves by S&P Dow Jones Indices which oversees the methodology used for constructing the S&P National Municipal Bond Indices that are used by investors to track the performance of municipal bonds issued throughout the U.S.

On December 20, 2013, S&P Dow Jones Indices announced the removal of U.S. territories, including Puerto Rico, from the S&P Municipal Bond “investment grade indices.” According to S&P Dow Indices, the removal of Puerto Rico municipal bonds as a component from the U.S. National Municipal Bond Market indices was due to dissimilarities between the “performance and characteristics” between the U.S. territories, including Puerto Rico, and the universe of “investment grade” municipal bonds issued by states and municipalities throughout the country. These changes were originally to be made on a gradual basis through March 2014. On January 8, 2014, S&P Dow Jones Indices hastened the removal of U.S. territories, including Puerto Rico municipal bonds, from S&P National AMT-Free and S&P AMT-Free Municipal Series Indices which was now effective January 2014 month end.

The removal of Puerto Rico municipal bonds from the universe of “investment grade” municipal bonds could potentially result in increased sell orders from municipal bond portfolio managers driving prices lower. Selling pressure from municipal bond portfolios including large mutual funds that hold Puerto Rico municipal bonds could be required because of fund-imposed “investment grade” mandates or money manager negative sentiment about the Puerto Rican economy. UBS Puerto Rico Family of Funds, including UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds, that are leveraged 50% against an underlying portfolio of Puerto Rico municipal bonds which may soon face lower prices. The effects of leverage on further price declines could be disastrous for closed-end funds that are illiquid and non-traded.

UBS Financial Services of Puerto (UBS )recently reported the net asset values (NAV) for their proprietary closed-end funds mat suffer future losses.  These funds are a part of the UBS Puerto Rico Family of Funds which are marketed exclusively to Puerto Rico residents.  The UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds, are leveraged 50% and concentrated in Puerto Rico issuers, continue to suffer losses with many Puerto Rico issuer credit ratings coming under review for potential downgrades.  As of January 2, 2014, UBS reported the UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds have declined on average another 7.15% and 4.16%, over the last 22 days.

According to UBS Financial Services,  Puerto Rico Municipal Bonds are currently under review for a downgrade in credit quality by Moody’s Rating Agency.   The Moody’s Global Credit Research report dated December 11, 2013 stated that approximately $52 Billion in debt financing is affected by the downgrade review. During the review period, Moody’s reports the downgrade review will focus on the following:

  • The ability to access the debt market for more public finance;
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