Two years after the Financial Industry Regulatory Authority (FINRA) barred former UBS Financial Services of Puerto Rico (UBS-PR) broker Jose Ramirez, nicknamed the Whopper, our UBS Puerto Rico fraud attorneys are continuing to provide representation to investors who sustained losses because they took his and other UBS-PR brokers’ advice to borrow from credit lines in order to invest in even more securities. If you are one of these investors and you would like to explore your legal options, please contact Shepherd Smith Edwards and Kantas, LTD LLP today.
It was in 2015 that the US Securities and Exchange Commission (SEC) brought charges against Ramirez accusing him of fraud in the offer and sale of $50 million of UBS-PR affiliated, non-exchange traded closed-end mutual funds. The former UBS broker allegedly enriched himself by advising certain customers to use non-purpose credit lines that a firm affiliate, UBS Bank USA, was offering so that they could buy even more shares.
These customers were not, in fact, allowed to use credit lines to buy the securities and Ramirez allegedly knew this. He is accused of getting around restrictions by telling customers to move money to a bank that had no affiliation with UBS and then re-depositing the funds to their UBS Puerto Rico brokerage account in order to buy additional closed-end mutual funds or Puerto Rico bonds. Such a scheme was a violation of numerous rules and regulations and, if misrepresented to the investors as the SEC has alleged, would have been a major legal violation.
Ramirez also purportedly downplayed the risks involved in his investment strategy to investors. When the market dropped in 2013, customers were subject to at least $37 million in maintenance calls. Meantime, Ramirez earned at least $2.8 million in illicit profits from his alleged fraud.
UBS Management Also Used Credit Lines
Included among those who allegedly participated in this scheme were a number of high-net-worth UBS clients and even UBS Puerto Rico’s own management. In fact, according to news reports, including one recently published on El Nuevo Dia, one UBS employee, Leslie Highley (Mr. Highley), has already given a deposition to regulators admitting that he participated in this scheme, saying that he would take loans from his line of credit, move the money to his account at Banco Popular, and then return the money to UBS Puerto Rico to purchase more investments. Mr. Highley is the director of UBS Asset Management of Puerto Rico, the UBS division that managed UBS Puerto Rico’s closed-end funds. In his deposition, which was part of FINRA’s probe, Highley pointed the finger at Ramirez for guiding him to the credit lines to buy the mutual fund shares.
Former clients of UBS advisor David Lugo have made similar allegations. In fact, earlier this year, a FINRA arbitration panel found that Mr. Lugo did indeed recommend that one of his clients engage in this same loan scheme and ruled in favor of the client for $9 million. In addition, the arbitration panel assessed $1 million in punitive damages against UBS for its failure to detect Mr. Lugo’s wrongdoing.
UBS Puerto Rico is Called to Task Over UBS Puerto Rico Closed-End Mutual Fund Sales
Also in 2015, UBS Puerto Rico agreed to pay $15 million in disgorgement, interest, and penalties related to its allegedly inadequate supervision of Ramirez. The brokerage firm also agreed to settle FINRA’s charges over the matter with a $7.5 million fine and interest on up to $11 million in restitution to be issued to over 150 investors who suffered losses.
Unfortunately, many of the investors who used credit lines to buy Puerto Rico securities that they could not have afforded otherwise were never sophisticated enough to understand the risks involved nor did they have the portfolio to handle those risks. When the market fell apart in 2013, they sustained massive investment losses.
In addition to regulators, FINRA arbitration cases have been filed. To date, it is reported that more than 2,000 FINRA arbitrations have been submitted on the island, mostly against UBS Puerto Rico, but also against other firms, such as Santander Securities (SAN), Banco Popular, Morgan Stanley (MS) and Oriental Securities. Investors have won the majority of those cases against their former investment managers, supporting that such investments concentrated in Puerto Rico were not suitable for the vast majority of investors.
Our Puerto Rico securities lawyers have spent the last four years helping these investors to recover their money. Contact us today if you invested with a UBS Puerto Rico broker or a broker from Santander Securities, Popular Securities, Oriental Securities, Morgan Stanley, or another broker-dealer. Your initial case consultation is a free, no obligation assessment session.
FINRA Orders UBS to Pay Shepherd, Smith, Edwards & Kantas Client $9 Million Over Puerto Rico Municipal Bond and Fund Investment Losses, Stockbroker Fraud Blog, February 24, 2017
UBS Puerto Rico To Pay the SEC $15M Over Closed-End Bond Fund Sales, Stockbroker Fraud Blog, September 29, 2015
UBS Puerto Rico Branch Manager Had Warned that Brokers Were Pushing Improper Loan Practices, Stockbroker Fraud Blog, August 16, 2015