Articles Tagged with SSEK

San Juan, Puerto Rico – October 3, 2013

Lawyers with the Securities Law Firm of Shepherd Smith Edwards & Kantas LLP,  are investigating claims involving Puerto Rico UBS bond funds.  UBS has been the most prominent broker-dealer operating in Puerto Rico for a number of years.  As a result, many, if not most, individuals in Puerto Rico with brokerage accounts use UBS, resulting in UBS managing roughly $10 billion of assets of Puerto Rico residents.

Unfortunately, UBS recommended that many of these clients make significant investments in proprietary UBS bond funds. These UBS bond funds, such as the Tax-Free Puerto Rico Fund II, invest primarily in Puerto Rico municipal bonds.

The attorneys at the law firm Shepherd, Smith, Edwards & Kantas LLP are currently investigating claims of institutional investors involving swaps or other ongoing, inappropriate investments.  Many companies, state municipalities, and other governments were talked into entering into swap transactions, either as a part of another securities transaction such as a new bond issuance, or on their own.  Typically, these swaps were sold as ways to hedge fluctuating liabilities that the customer already had, or in some other way to reduce financing expenses.

In a typical swap, the two parties are effectively exchanging a fixed rate and a variable rate.  The party that currently has a variable rate liability, oftentimes a bond, enters into the transaction to avoid the carrying costs associated with that bond’s benchmark rising.  In exchange, that party agrees to pay the other party a fixed, periodic payment.  If the swap is done correctly, it allows the party with the original variable rate to avoid the consequences of its bond, or other liability, rate increasing because, if the rate were to increase, that rate increase would actually end up being paid by the swap counterparty.  Conversely, if the rate on the bond decreased, the costs of that obligation would go down correspondingly to the increased cost of the swap, creating a wash.  The party has effectively transformed a variable obligation to a fixed one.

Unfortunately for many of those customers, many of these swaps have proven wholly ineffective in fulfilling their expressly stated purposes.  The reasons for these failures can vary significantly.  In some cases, the swaps are set up incorrectly, such as not taking into account various reasons that the underlying obligation could fluctuate, or not marking the swap to the same benchmark as the underlying obligation.  Whatever the reasons for their failure, many institutions have found themselves with hugely expensive carrying costs for these swaps and equally huge termination penalties to try to get out of them.

The securities lawyers with Shepherd, Smith, Edwards, & Kantas LLP (“SSEK”) are investigating claims of investors and clients of Jeffrey Randolph Wilson (“Wilson”) who works with Wells Fargo Clearing Services, LLC (“Wells Fargo”) in Las Cruces, New Mexico. In the last 18 months, at least three of Mr. Wilson’s clients have filed arbitration claims against Wells Fargo claiming that Wilson and/or Wells Fargo acted improperly regarding those clients’ accounts. These customer claims include allegations that Mr. Wilson excessively traded customer accounts, made unsuitable investment recommendations, and exposed the clients to excessive risk.

All brokers are required to make only suitable recommendations to their clients and manage their clients’ investments appropriately. That means that the brokers, like Mr. Wilson, are supposed to consider a client individually and consider that client’s willingness to take risks, age, and other factors – like whether the client is retired – into account when deciding what investments to recommend. Similarly, some investments which might have been appropriate for a client can become inappropriate, or unsuitable, if they are bought and sold too often in a client’s account. Generally, the more frequent the trading in an account, the higher risk the investment strategy.

In the case with Mr. Wilson’s clients, more than one has complained that Mr. Wilson improperly advised them to invest in energy related investments which led to substantial losses. Recently, a FINRA arbitration panel agreed with that allegation, ordering Wells Fargo Advisors to pay a client $357,000 for losses suffered in unsuitable energy and housing based investments, as well as use of margin trading.

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