Three investors who claim they were defrauded by UBS Financial Services in connection with the bank’s failed Puerto Rico bond fund won a significant victory this week. UBS and several other brokerage firms face a waive of claims related to the failed offerings. UBS disclosed last month that it faces up to $1 billion in claims.
Neliea Lopez Del Valle, Andres Alayon and Andre Gomez sought $10,000,000 in damages as well as punitive damages and attorneys’ fees against UBS. In a disturbing move, the banking giant filed its own claim against one of the victims seeking $1.2 million. UBS also claimed that they had done nothing wrong and sought to have the complaint dismissed and expunged.
Thus far this year, UBS has lost several cases tied to their Puerto Rico bond fund offerings. Experts say the fund was over concentrated in risky bond offerings and that UBS failed to properly warn investors of the risky nature of the bonds. Those risk became evident earlier this year when payments were missed.
In this case, the three investors claimed that UBS was liable for their losses on theories of negligence, breach of contract, suitability, over concentration and misrepresentation.
After a full hearing, the three-person panel ruled in favor of the investors and awarded them approximately $2.9 million in damages together with an additional $50,000 in costs and $479,000 in legal fees.
Typically arbitration panels don’t give reasons for their decision and this panel was no exception. We do know, however, that panel had subpoenaed a witness who failed to appear. Previously, a UBS broker in another matter elected to invoke the 5th Amendment of the U.S. Constitution and not answer questions.
We also know that part of the investor’s claims involved borrowing money secured by the Puerto Rico bond fund. (We suspect this is what gave rise to the counterclaim.)
Based on our experience, UBS was so eager to sell more bond fund shares that it allowed customers to borrow. When the bonds defaulted, not only were investors out their money but in some cases still owed the bank more money because of the loans.
Borrowing money is to purchase more securities is always questionable, especially when the loans are backed by risky investments or when the investors are elderly or need access to their money. In this case, using leverage to buy even more risky UBS Puerto Rico bond fund shares was doomed to fail. Unfortunately, many investors lost not only their savings but are still on the hook for the loans.
We worry that more investors have not come forward for fear that they will be sued on the loans if they make a claim for their losses. As this case points out, however, it is possible to successfully bring a claim against a large bank such as UBS.
Claims involving brokerage accounts are typically handled by arbitration before the Financial Industry Regulatory Authority (FINRA). Generally there is no appeal from an award absent an egregious failure by the panel or fraud.
If you lost money in a Puerto Rico bond fund, give us a call. Most cases can be handled on a contingent fee basis meaning no legal fees unless we are successful in recovering money. For more information contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct)
MahanyLaw – America’s Fraud Recovery Lawyers