PHOENIX - A Financial Industry Regulatory Authority arbitration panel in San Juan, Puerto Rico has ordered UBS AG to pay an investor about $1.45 million in compensation for losses suffered by investments in its Puerto Rico closed-end bond funds.
The arbitration award resulted from one of many similar complaints investors have filed against UBS and other firms over investments in funds that mostly hold Puerto Rico bonds.
The investors making these claims said the financial services firms over-concentrated their assets in these funds, which caused them to suffer losses when the value of the commonwealth's bonds plunged amidst increasing speculation that the commonwealth would eventually default on much of its debt.
Lawyers who filed some of the hundreds of arbitration claims have said that many of their clients are elderly retirees who invested large portions of their savings in the funds.
Christel Barie Bengoa Lopez, the claimant in this particular action, alleged that UBS acted fraudulently and was negligent in its supervision of its employees. The investor requested more than $2 million in damages be repaid.
In a Feb. 17 decision, the arbitration panel ordered UBS to pay more than $1.1 million in damages plus interest at 4.25%, as well as about $250,000 for attorneys' fees and another nearly $60,000 to cover other expenses.
In a separate action decided the same day, UBS and several of its brokers were found to be not liable in a request for almost $17 million in damages.
"Respondent (David) Lugo, claimants' broker, met frequently with claimants to discuss their accounts and did not provide any false or misleading information to claimants," the panel found. "The product recommendations respondent Lugo made were reasonable, and the securities sold to claimants were suitable. The asset allocation for claimants was not overly concentrated."
Three other UBS employees were found to not be involved in the conduct at all.
Besides hundreds of requests for arbitration, UBS and other firms have also been penalized by regulators for wrongdoing that FINRA and the Securities and Exchange Commission found when investigating the Puerto Rico funds.
In September UBS agreed to pay $34 million to settle charges by FINRA and the SEC that it failed to supervise the suitability of transactions in Puerto Rican closed-end fund shares, including penalties, disgorgement of ill-gotten gains, and restitution to more than 100 customers.
The following month FINRA ordered San Juan-based Santander Securities to pay more than $6.4 million for similar conduct related to the funds.
Other firms who have had actions filed for arbitration include Merrill Lynch, Banco Popular, and Oriental Financial Services.
Under FINRA rules, arbitration decisions are final and are not subject to review or appeal except under limited circumstances such as corrupt conduct by the arbitrators. FINRA members must pay arbitration awards within 30 days or risk suspension by FINRA.
"Although the arbitrators awarded less than the full damages the claimant requested, UBS is disappointed with the decision to award any damages, with which we respectfully disagree," the firm said in a statement. "UBS notes that the decision in this case was based on the facts and circumstances particular to this claimant, and is not indicative of how other panels may rule with regard to other customers who invested in similar products."
