A couple in there 70’s. Much of their entire life savings and all of their liquid assets invested in a UBS closed end Puerto Rico bond fund. After you accuse your broker of investment fraud for losing your money he elects to “plead the Fifth” and not testify. Do you see a problem here?
Fortunately an arbitration panel with the Financial Industry Regulatory Authority – FINRA – saw a big problem and awarded the couple, Orlando Gonzalez and Milagros Vila Maldonado, more than $2.5 million.
This most recent case against UBS Wealth Management is the tip of the iceberg. We expect many, many more such cases. So does UBS, they reportedly have disclosed they face over $1 billion in claims.
According to published reports and records from the Financial Industry Regulatory Authority (FINRA), the couple had invested all of their liquid savings with their stockbroker Jose Gabriel Ramirez Jr. and his firm, UBS. According to the FINRA complaint, the couple was seeking a conservative, safe investment. Although many bond funds can be considered conservative, the UBS run fund was over-concentrated in the Puerto Rican market and trading in the fund was somewhat limited making the fund illiquid.
When a fund becomes over-concentrated, a small downturn can have a huge impact making the investment speculative instead of “safe” or “conservative.” Much like the old adage of “not putting all your eggs in one basket,” UBS had over concentrated it’s Puerto Rico bond funds making them very susceptible to wild swings in value.
Liquidity can also affect the suitability of a fund. Large, well diversified funds are easy to sell on the open market. The UBS investments made by Ramirez on the couple’s behalf were not very liquid making them hard to sell for a fair price if an investor suddenly needs access to his or her funds.
What makes this case even worse is Ramirez’ apparent insistence that the couple borrow even more money to invest. When that happens, investors can lose not only their life savings but still be on the hook for the loan balance!
In recent years FINRA, the SEC and many states have been cracking down on financial advisors that get elderly residents to borrow money in order to invest. Stockbrokers love it because they receive more commission income but the results can be devastating for investors.
A story in InvestmentNews reports that Ramirez “took the Fifth” and wouldn’t answer questions by regulators. The Fifth Amendment of U.S. Constitution gives people the right to not criminally incriminate themselves. However when a defendant in a civil case refuses to answer questions because he may implicate himself in a crime, judges take notice. By not answering questions, Ramirez likely caused the three person FINRA arbitration panel to immediately suspect wrongdoing.
Ramirez, nicknamed “The Whopper”, is no choirboy. Records from regulatory and licensing agencies reveal he has 65 discloseable events on his record. In 30 years of both being a prosecutor and practicing law, I have never found anyone with such a disastrous record. That such a person worked for UBS for 17 years is shocking. (We seriously doubt someone with this type of record could get a job at Stratton Oakmont, the boiler room brokerage firm from the movie Wolf of Wall Street.)
Thankfully, the “Whopper” Jose Gabriel Ramirez Jr. was permanently barred from the industry by regulators in 2014 for failing to answer questions. Fail to cooperate in an investigation and you almost always lose your brokerage licenses. That at least prevents other investors from getting harmed.
The current case by Orlando Gonzalez and Milagros Vila Maldonado against Ramirez was resolved last week. The official charges levied against Ramirez included omission of material facts, making unsuitable investment recommendations, breach of fiduciary duty, fraud, breach of contract and violation of the Puerto Rico Uniform Securities Act. As is typical of most FINRA arbitration decisions, the panel did not give the basis for its decision in favor of Mr. Gonzalez and Ms. Maldonado.
In a bizarre effort to spin the results in their favor, UBS attempted to declare victory by claiming they were only ordered to pay $2,545,000 instead of the $6 million sought by the couple.
Earlier this year, UBS was forced to pay $6.5 million to another Ramirez client who also claimed over-concentration in the closed end UBS Puerto Rico bond funds.
UBS isn’t the only brokerage firm mired in the Puerto Rico bond fund mess. Because it ran the largest of the closed-end funds, however, and had so many people invested in these funds, it stands to lose the most money.
The Gonzalez – Maldonado case is a reminder why it is important to make sure your brokerage firm is either large enough or has enough insurance to withstand large investor claims. There is no way that Jose “the Whopper” Ramirez would ever be able to make investors whole. Under U.S. law, however, brokerage firms are responsible for the actions of their agents and employees.
It is not too late to make a complaint against your broker for losses sustained in Puerto Rico bonds. We know of a few brokers that have been telling clients to be patient and that the funds will return to their previous values. Last week’s defaults, however, should be a warning that things are getting worse, not better.
If you have lost money in a UBS bond fund, lost money with Jose Ramirez or lost money because of any unsuitable investment recommendation, give us a call. Most stockbroker fraud cases can be handled on a contingency fee basis meaning no legal fees unless we recover your hard earned money.
MahanyLaw – America’s Stockbroker Fraud Lawyers