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Accusations of Bond Fraud by UBS in Puerto Rico

July 12, 2023 Broker Complaints

Peter Mougey, an attorney handling the UBS Puerto Rico Bond case, goes into great depth in the video link below about the claims made in the case and the best ways to pursue compensation and a settlement.

Puerto Rico Bond Fraud Case: UBS Ordered to Pay $19.8M 

The Insolvency of Municipal Bonds in Puerto Rico

The economy of Puerto Rico has been deteriorating for a while. Puerto Rico and its agencies increased their financial commitments in the municipal bonds sector to $70 billion during a ten-year period as of 2013, in an effort to strengthen its economy. 

By permitting investors in UBS Puerto Rico municipal bond investments to lose billions of dollars, UBS Puerto Rico contributed to the escalation of the approaching financial crisis.

In particular, UBS urged clients to over-concentrate on Puerto Rico’s closed-end, high-risk municipal bonds without fully explaining the dangers of the transaction or taking into account its appropriateness for the client’s actual aims.

To satisfy margin requirements for the bonds, several UBS clients were compelled to liquidate their entire life savings. Nobody has left anything for these victims.

Traders were unwisely advised by UBS Puerto Rico to focus their portfolios on closed-end Puerto Rican municipal bond funds. Undiversified closed-end funds were used. The clients were exposed to too much risk since they held a sizable portion of their liquid net worth in closed-end funds and individual Puerto Rican bonds.

The majority of the closed-end funds’ investment advisers, UBS, used the leverage of more than 50% to buy high-risk individual bonds. Comparatively speaking, many U.S. municipal bond funds typically only have a 22% leverage.

Furthermore, it is at best unclear how UBS defines 50% leverage. In actuality, it means that for each dollar kept in investor assets, another $1 is invested using borrowed funds.

An additional dollar is borrowed for each dollar that is invested, and two dollars are utilized to buy bonds. Therefore, the equity (the starting dollar) is leveraged to a full 100%. A 25% decrease in the overall investment equates to a 50% decrease in the cash that was initially put up. Risk is significantly increased by this tactic.

Buyers were also urged to utilize lines of credit to purchase bonds by UBS financial advisors. In most cases, when an investor purchases stocks with borrowed funds, they do it via a margin loan, which is governed and places restrictions on the amount of risk that the investor may incur. 

Financial advisers at UBS were encouraged to recommend lines of credit since they might earn a commission on both the line of credit and the bonds bought.

There are about 132 financial advisers employed by UBS Financial Services, Inc. of Puerto Rico, which has 5 offices. Significant financial losses were recorded by UBS Puerto Rico in 2013 across a number of its own closed-end bond vehicles. 

UBS Puerto Rico allegedly provided “serious deceptions and substantial errors” about the liquidity and price of non-exchange transferred, closed-end bonds, according to the SEC complaint, which was submitted in 2012.

Without apologizing, UBS did reach a $26 million disgorgement and penalties settlement with the SEC. The SEC was unable to demonstrate that two senior UBS PR officials engaged in fraud, according to an SEC administrative judge. It is critical for UBS clients to comprehend that the focus of our cases is appropriateness.

US authorities are reportedly looking into UBS for possible criminal fraud since it recommended investors purchase the Puerto Rican bond investments that afterward saw a sharp decline in value using non-purpose loans rather than margin loans.

Traders who lost their whole life savings have already brought more than $600 million in lawsuits against UBS. Almost everyone who has assets in the municipal bond sector has been impacted in some manner by UBS Puerto Rico’s conduct. 77 percent of municipal bond funds, according to Morningstar Inc., include some Puerto Rican assets in their portfolios.

These leveraged bonds were frequently offered to seniors and cautious investors by UBS financial advisors. Leveraged bonds are an extremely dangerous and volatile investment, hence they are frequently not suggested to cautious investors.

UBS Puerto Rico, on the other hand, routinely offered to conservative investors and even urged pensioners to take out loans to buy these leveraged bonds. The subsequent UBS Puerto Rico bonds are being looked into:

  1. Puerto Rico AAA Portfolio Target Maturity Fund
  2. Puerto Rico GNMA US Government Target Maturity Fund
  3. Puerto Rico Fixed Income Fund
  4. Puerto Rico Fixed Income Fund II
  5. Puerto Rico Fixed Income Fund III
  6. Puerto Rico Fixed Income Fund IV
  7. Tax-Free Puerto Rico Fund, Inc.
  8. Puerto Rico Fixed Income Fund V
  9. Tax-Free Puerto Rico Fund II, Inc.
  10. Tax-Free Puerto Rico Target Maturity Fund, Inc.
  11. Tax Free Puerto Rico Fund
  12. Puerto Rico AAA Portfolio Bond Fund
  13. Puerto Rico AAA Portfolio Bond Fund II
  14. Multi-Select Securities Puerto Rico Fund
  15. Puerto Rico AAA Portfolio Target Maturity Fund, Inc.
  16. Puerto Rico AAA Portfolio Bond Fund
  17. Puerto Rico AAA Portfolio Bond Fund II
  18. Puerto Rico Fixed Income Fund
  19. Puerto Rico Fixed Income Fund III
  20. Puerto Rico Fixed Income Fund II
  21. Puerto Rico Fixed Income Fund IV
  22. Puerto Rico Fixed Income Fund VI
  23. Puerto Rico Fixed Income Fund V
  24. Puerto Rico GNMA & U.S. Government Target Maturity Fund
  25. Puerto Rico Investors Tax-Free Fund
  26. Puerto Rico Investors Tax-Free Fund II
  27. Puerto Rico Investors Tax-Free Fund III
  28. Puerto Rico Investors Tax-Free Fund V
  29. Puerto Rico Investors Tax-Free Fund IV
  30. Puerto Rico Investors Tax-Free Fund VI
  31. Puerto Rico Short-Term Investment Fund
  32. Puerto Rico Mortgage-Backed & U.S. Government Securities Fund
  33. Tax-Free Puerto Rico Fund II
  34. Tax-Free Puerto Rico Fund
  35. Tax-Free Puerto Rico Target Maturity Fund

The article was initially published on the website of the law firm of Levin Papantonio Rafferty (The UBS Puerto Rico Bond Fraud Lawsuit | Levin Papantonio Rafferty – Personal Injury Law Firm (

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