Puerto Rico bond funds have been suffering massive losses recently and regulators have already taken action. According to the SEC, UBS Financial Services of Puerto Rico Inc. (“UBS”) misled thousands of its retail investors in 23 of its closed-end mutual funds. While UBS has already spent more than $26 million to settle the SEC’s charges, investors are now starting to pursue their own actions against the institution to recover potentially millions in losses.
Starting in 2008, UBS began soliciting investors in its Puerto Rico bond funds by promoting the funds’ market performance and high premiums to net asset value as the result of supply and demand in a competitive and liquid secondary market. However, UBS knew about a significant “supply and demand imbalance” and internally discussed the “weak secondary market.” UBS misled investors, failing to disclose that it controlled the secondary market. In 2009, UBS withdrew its market support and sold its inventory to unsuspecting customers. At the same time, it failed to disclose that it was drastically reducing its inventory, and undercut customer orders so that UBS’s inventory could be liquidated first.
Investors may have a host of claims against UBS including fraudulent misrepresentations and omissions, unsuitable investment advice, and failure to supervise.