In the U.S. Securities and Exchange Commission’s (SEC) Puerto Rico bond fraud case against ex-UBS Puerto Rico broker Jose Ramirez, a federal judge has found that Ramirez committed fraud and was in violation of securities laws when he directed customers to use lines of credit to purchase Puerto Rico closed-end funds. In 2015, the SEC had filed charges against Ramirez accusing him of misleading customers regarding the Puerto Rico closed-end funds while advising them to use money from UBS Bank USA credit lines to buy UBS Puerto Rico fund shares. Ramirez allegedly made an additional $2.8 million in commissions as a result. The brokerage firm fired Mr. Ramirez in 2014.
According to U.S. District Court Judge Pedro Delgado-Hernandez, who granted the SEC’s motion for summary judgment, the ex-UBS Puerto Rick broker lied to customers and failed to tell them that if their collateral went down in value and reached a certain point, the customers might need to have their accounts liquidated to pay back the loans.
In 2013, following a number of credit downgrades, the Puerto Rico closed-end funds saw a substantial drop in value. By September 2013, more than three dozen of Ramirez’s customers had $37 million in “margin maintenance calls” that required many clients to have their accounts liquidated.
While Ramirez was employing this fraudulent strategy, he was given a “banking champion” award and earned commissions on the Puerto Rico closed-end bonds that his customers purchased. Of the more than $12.9 million in compensation he was paid, the court found that approximately $5.5 million of that came from the lines of credit-related transactions.
A UBS-conducted review found that between 2011 and 2013, there were more than 400 instances which appeared to involved Puerto Rico closed-end funds being purchased using line of credit proceeds. The SEC’s complaint accused the ex-UBS Puerto Rico broker of lying to customers not just about the closed-end funds’ safety, but also regarding the risks involved in investing in the funds while using borrowed money. The regulator also accused Ramirez of lying to a firm manager when asked about the suspect transactions.
Based on the evidence before him, Judge Delgado-Hernandez found that Ramirez violated the Securities Act, the Exchange Act’s Section 10(b), and Rule 10b-5 thereunder. The SEC wants injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and a civil penalty.
UBS Puerto Rico Bond Fraud Cases
Since 2013, our UBS Puerto Rico investment fraud law firm has been working with investors to help them recoup the losses investors sustained because brokerage firms and their brokers recommended that their customers invest in the island’s securities. Along with UBS, Santander (SAN), Securities, Oriental Financial Services, and Banco Popular are just a few of the other firms that have come under fire for what investors are now saying were inappropriate recommendations that caused them to suffer catastrophic losses when the island’s bonds and related bond funds plunged in value in 2013.
UBS Puerto Rico is considered among the greatest offenders, with thousands of investors having already brought claims against the broker-dealer. To date, the firm has had to pay hundreds of millions of dollars in settlements to investors and regulators.
In the last few years, new information has come to light about how UBS not only recommended the Puerto Rico bonds to investors for whom they were not appropriate but also that the broker-dealer pressured its brokers to get customers to invest. Many investors were advised to borrow on credit lines so that they could invest even more money in the securities.
Contact Shepherd Smith Edwards & Kantas, for a free, no obligation, consultation with one of our expert attorneys to see if you have a case.
Read the SEC Complaint (PDF)
Judge Finds for SEC in UBS Puerto Rico Closed-End Fund Case, The Bond Buyer, May 3, 2018
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