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Investors Suing UBS Puerto Rico Over Closed-End Fund Losses Are Denied Class Action Certification

U.S. District Judge Sidney H. Stein is refusing to grant class action certification to a group of investors suing UBS Puerto Rico over its sale of proprietary closed-end mutual funds. In particular, the class action complaint dealt with a series of 23 closed-end bond funds that UBS Puerto Rico developed and marketed exclusively to Puerto Rico residents.

These proprietary closed-end funds were comprised of at least 2/3 Puerto Rico debt (and often much higher), resulting in a geographic concentration that placed the owners of such funds at a great risk if anything negative happened on the island. Additionally, the UBS closed-end funds were highly leveraged, typically borrowing $1 for every $1 invested, meaning that any losses in the closed-end funds would be significantly increased.

Notwithstanding the above, the plaintiff investors say that UBS falsely depicted these closed-end mutual funds as safe and secure investments that would garner fund holders tax-free income when, in truth, the mutual funds were “ticking time bombs” that were actually very risky.

When the Puerto Rico investments failed in 2013, thousands of investors – many of them older investors, retail investors, and small business owners – who had placed their money in these closed-end mutual funds and other investments heavily invested in the same securities – sustained major, and in some cases, catastrophic losses. The Commonwealth, which was forced to file for bankruptcy-like proceedings last year, still owes over $70 billion of debt. And, as a result of hurricane Maria and other market forces, Puerto Rico’s economy continues to be in crisis.

The plaintiffs, who filed this Puerto Rico investor fraud lawsuit in 2015, contend that the financial firms failed to properly analyze whether the investments were suitable before selling to them, causing many UBS customers to lose a large portion of their life savings. According to the complaint, this was a violation of UBS’s contract with customers. The broker-dealer has a client agreement that obligates the firm and its subsidiaries to ensure the suitability of an investment before recommending or selling to a client.

The investors were seeking class-action certification for anyone who purchased UBS’s closed-end funds between 5/5/2008 and 5/5/2014. Now, however, Judge Stein has determined that granting certification would not be appropriate because most of the questions asked in the Puerto Rico bond fraud lawsuit cannot be addressed classwide. As Stein noted, determining suitability is an “inherently individualized process.”


Not all investments are suitable for every investor, and brokers and their broker-dealers have a duty to make sure that when recommending or making an investment on a client’s behalf that the investment is indeed appropriate for the customer’s investment goals, risk tolerance, net worth, age, personal and professional situations, tax needs, and investing experience. Judge Stein concluded that determining whether or not UBS failed in its suitability obligations requires an “enormous number of individual questions” being asked, possibly as many as the number of purchases and hold decisions each prospective investor made during the class period at issue.

FINRA Arbitration Option

While Judge Stein’s decision likely ends the road for investors who believed they could recover their investment losses through a class action, there are still other options for recovery for those who have sustained losses in UBS Puerto Rico investments. Most notably, several thousand island residents have filed claims against UBS in a forum specifically designed to address such claims. That forum, FINRA Arbitration, has already resolved close to 1,000 complaints resulting in financial recovery through settlements or awards of nearly half a billion dollars collectively for wronged Puerto Ricans.

Now that the class action has been dismissed, FINRA arbitration is likely the best – and possibly the only – option remaining for investors to recover their losses in these funds and other investments that fell as a result of the 2013 collapse of Puerto Rican debt. If you have losses, now is the best time to consult with an attorney and bring those claims before the FINRA forum is foreclosed to investors.

UBS Puerto Rico Investor Claims

At Shepherd Smith Edwards and Kantas, our UBS Puerto Rico bond fraud lawyers represent individual investors in bringing their own investor claims against the brokerage firm and its brokers over losses that they sustained from unsuitable recommendations, negligence, misrepresentations, omissions and fraud. For more than five years, our securities attorneys have represented many island residents in their FINRA arbitration claims against UBS and other brokerage firms operating in the Commonwealth.

To date, we have resolved these claims for well over 100 Puerto Ricans through either arbitration or settlement. Unfortunately, too many investors on the island and the U.S. mainland were sold Puerto Rico securities that were unsuitable for them. To add insult to that injury, there is ample evidence that UBS knew that the Puerto Rico bonds and the closed-end funds were much riskier than represented, but purposely downplayed the risks of these investments and not only continued to sell the funds to investors, for whom they were not suitable, but also recommended that many of these investors borrow money so that they could buy more of these securities. All of this wrongdoing resulted in catastrophic losses for many investors.

If you are an investor who suffered losses from Puerto Rico bonds and closed-bond fraud, contact our UBS Puerto Rico fraud attorneys today so that we can help you explore your legal options.

UBS Investors Denied Cert. In Mutual Funds Dispute, Law360, September 18, 2018

Judge rejects class status in lawsuit over UBS Puerto Rico bonds, Reuters, September 18, 2018

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Shepherd Smith Edwards & Kantas LLP Investigating Claims Involving Puerto Rico UBS Bond Funds, August 21, 2018

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FINRA Panel Orders UBS to Pay $204K in Puerto Rico Bond Fraud Claim, Stockbroker Fraud Blog, March 22, 2018

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