UBS-managed assets fall from peak of $16.4B in 2011 to $7.6B
SAN JUAN – Securities arbitration law firm Klayman & Toskes, together with San Juan-based Carlo Law Offices P.S.C., on Jan. 13 filed a new claim against UBS Financial Services Inc. of Puerto Rico and UBS Financial Services Inc. for $8.5 million.
According to the claim, the claimant entrusted assets to UBS with the investment objective of capital preservation. However, UBS ultimately concentrated the account in Puerto Rico government bonds (PRGBs) and its proprietary Puerto Rico closed-end bond funds (UBS PR CEBFs), which are leveraged and concentrated in PRGBs.
UBS purchased and held for the claimant PRGBs and UBS PR CEBFs, both of which are closely tied to the performance of Puerto Rico’s economy. The claimant believed the purchases were consistent with their low risk tolerance.
However, the over-concentration in these PRGBs and UBS PR CEBFs was fraught with excessive risk given the claimant’s investment objective and risk tolerance.
“UBS failed to disclose to the claimant the risks associated with over-concentrating the account in these securities. Had this information and the true nature of the risk of the recommended allocation been known to the claimant or properly disclosed, he would not have invested his assets in these products,” the firms’ written statement reads.
The law firms representing the claimant are investigating the sales practices of UBS in connection with investment recommendations provided to their customers.
A year ago, UBS Financial Services Inc. of Puerto Rico, the Swiss bank’s San Juan-based subsidiary, eliminated a total of about 20 staff members from its Wealth Management Consulting, Closed-End Funds, Personal & Corporate Trust and Fiscal Planning divisions, plus some brokers.
Back in October of 2015, UBS eliminated the Investment Banking, Credit, Business Development, Marketing, Government & Institutional divisions and let eight employees go—including top executives and administrative staff.
Before that, the firm had shut down and relocated staff from its Condado, Guaynabo and Ponce offices.
The downsizing at UBS in Puerto Rico responded to the decrease in the firm’s assets and business.
UBS Puerto Rico has been hemorrhaging clients on the heels of more than $3 billion in class-action lawsuits against the island’s largest brokerage firm, from investors in the firm’s closed-end mutual funds (CEFs), which have lost millions as the value of Puerto Rico bonds declined after being downgraded to noninvestment grade.
In September 2015, the Financial Industry Regulatory Authority (FINRA), Wall Street’s industry-funded watchdog, announced it had fined UBS Financial Services of Puerto Rico $7.5 million for “supervisory failures related to the suitability of transactions in Puerto Rican closed-end fund shares.”
FINRA also ordered UBS Puerto Rico to pay approximately $11 million in “restitution” to 165 customers “who were forced to realize losses on their CEF positions.”