UBS loses another Puerto Rico bond claim, this time for $4.4 million

This is the third multimillion-dollar loss involving Puerto Rico bonds or bond funds UBS has seen since December

Mar 31, 2017 @ 12:44 pm

By Bruce Kelly

UBS Financial Services Inc. has lost yet another multi-million dollar Finra arbitration award stemming from the sale of Puerto Rico bonds and closed-end funds.

According to the arbitration award, which was decided on Wednesday by a three-member Finra dispute resolution panel, the claimant, Dr. Luis E. Cummings, was awarded $4.4 million in damages and various costs. Mr. Cummings' complaint, which was filed in March 2015, was related to his investments in Puerto Rico closed-end funds and Puerto Rico bonds, as well as loans obtained against those closed-end funds and bonds, according to the award. The complaint also stemmed from the use of lines of credit to purchase additional bonds and funds.

Mr. Cummings alleged fault, fraud, deceit, recklessness and negligence, according to the award.

"Although the arbitrators awarded less than the full damages claimants requested, UBS is disappointed and strongly disagrees with the decision to award any damages in this case," said UBS spokesman Peter Stack in an email. "Dr. Cummings was an experienced investor who made a fully informed decision to leverage his investments and invest a substantial part of his portfolio in Puerto Rico securities, including UBS Puerto Rico closed end funds, because of their long history of providing excellent returns and substantial tax advantages."

This is the third multi-million-dollar loss involving Puerto Rico bonds or bond funds UBS has seen since December. That month, UBS lost an $18.6 million claim, which Finra confirmed was the largest to date having to do with Puerto Rico bond funds.

In February, UBS lost a $9 million award to another investor making similar claims.

The Finra panel awarded Mr. Cummings $3.9 million in compensatory damages, $442,000 in attorneys' fees and $61,500 in undisclosed costs.

UBS Financial Services and its affiliated firm, UBS Financial Services Inc. of Puerto Rico, have been dogged by millions of dollars of client losses in proprietary closed-end bond funds filled with Puerto Rico municipal securities issued by various authorities and agencies.

The market for Puerto Rico's $70 billion in muni debt bottomed out over the summer of 2013 after Detroit filed for bankruptcy that July. Puerto Rico, which cannot file for bankruptcy and restructure debt under the U.S. Bankruptcy Code, has been struggling to stave off a widespread default ever since.


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