UBS Financial Services

Publicly available records provided by the Financial Industry Regulatory Authority (FINRA) and accessed on September 6, 2018 indicate that a group of investors have won an award of $300,000 in an arbitration claim against UBS Financial Services concerning investments in Puerto Rico closed-end funds.

According to the award document, the investors filed a claim in 2015 alleging that UBS Financial Services breached its fiduciary duty, acted negligently, was negligent in its supervisory duties, breached contract, committed fraud, violated the Puerto Rico Uniform Securities Act, and violated the Securities Exchange Act in connection to investments in “Puerto Rico closed-end funds invested predominantly in Puerto Rico debt.”

For reference, the US territory of Puerto Rico recently filed for bankruptcy-like protections to address a debt crisis affecting more than $120 million in municipal bonds and unfunded pensions. As the debt crisis has negatively affected the value of many investments in Puerto Rico municipal bonds and closed-end funds, investors are increasingly seeking to recover losses for what may have been unsuitable or negligently supervised investments. An “unsuitable” investment is one considered inappropriate for the investor’s profile, a set of considerations including their net worth, income, investment experience, investment goals, and more. Relatedly, the term “fiduciary duty” refers to a broker, adviser, or firm’s obligation to act only in their customer’s best interests. Thus, for instance, the recommendation of unsuitable investments might constitute a breach of fiduciary duty.

The 2015 claim was filed by four claimants: Jose Diaz-Martinez, Iris Burgos-Rodriguez, Jose Diaz-Burgos, and Nellie Aponte-Flecha. A FINRA arbitration panel heard the case in San Juan, Puerto Rico, in 23 hearing sessions beginning in July 2018 and ending in August 2018. At the close of these proceedings, FINRA found the respondents—UBS Financial Services and UBS Financial Services of Puerto Rico—jointly and severally liable for compensatory damages totaling $300,000. The firms were not found liable for punitive damages and attorneys’ fees.