UBS Puerto Rico Bonds: What Investors Should Know

If you sustained losses in excess of $100,000 in Puerto Rico, you may be entitled to recover your losses. Please call our firm immediately at (305) 912-3000 for a free consultation.

Image via: WSJ.com

In the fall of 2013, the value of Puerto Rico’s municipal bonds began to decline sharply. By the August of 2015, the Puerto Rican government had defaulted on some major bond payments.

This debt crisis may still not yet be over.

On February 1st, 2017, Reuters reported that the Puerto Rican government once again missed some major debt payments.

The Puerto Rico bond default has already cost many investors tremendous amounts of money. In many cases, these investor losses could have been avoided had brokers and brokerage firms lived up to their basic obligations. No retail brokerage firm was more involved in the selling of Puerto Rico bonds than was UBS.

UBS Was Heavily Involved in Selling Puerto Rico’s Municipal Bonds

UBS has long been one of the biggest brokerage firms that operates on the island. As it turns out, selling Puerto Rico’s municipal bonds, and related bond funds, to customers became quite lucrative for the global services financial giant.

Indeed, Bloomberg reports that UBS brought in hundreds of millions of dollars in commissions and investment fees in relation to Puerto Rico bond fund transactions.

UBS was the lead underwriter of many different municipal bonds funds. Specifically, some of the funds that UBS offered include:

• Tax-Free Puerto Rico Fund I-II,
• Tax-Free Puerto Rico Target Maturity Fund;
• Puerto Rico AAA Portfolio Target Maturity Fund;
• Puerto Rico Investors Tax-Free Fund;
• Puerto Rico Investors Tax-Free Fund II;
• Puerto Rico Investors Tax-Free Fund III;
• Puerto Rico Tax-Free Target Maturity Fund; and
• Puerto Rico Tax-Free Target Maturity Fund II.

Unfortunately, while these funds were lucrative for UBS, they were a disaster for investors. While UBS customers were looking for safe investments, many of these funds lost more than 50 percent of their initial value.

UBS Encouraged Clients to Take on Too Much Risk

As a general rule, bonds are usually considered to be a relatively ‘safe’ investment. At least, bonds are usually far safer than are stocks. As such, many investors put more and more money into bonds as they approach and enter retirement.

However, this does not mean that bonds are without risk. All investments carry risks, and certain bonds can be quite risky. Customers have a right to know those risks ahead of time, so they can properly allocate their resources in accordance with their personal investment objectives.

Sadly, the evidence continues to show that UBS pushed clients into unsuitably risky municipal bond funds and encouraged customers to over-concentrate their investment capital in these funds.

UBS representatives consistently underplayed the risks associated with Puerto Rico’s bonds in order to increase their sales. In some cases, UBS sales representatives even encouraged their customers, often retirees or near retirees, to borrow money to up their investments. This led to situations where investors were instructed to put most, or even all, of their portfolio into Puerto Rico municipal bonds.

Not only were these not safe investments, but no investment is safe when you have all of your eggs in one basket.

UBS Puerto Rico Bond Default: Three Terms You Need to Know

1. Closed-End Funds: Most of the UBS Puerto Rico municipal bond funds were ‘closed-end funds’. These funds are collective investments that issue a fixed number of shares to investors. While closed-end funds can offer some upsides, they do generally carry additional downside risk as well.
2. Leverage: UBS recommended that many of its clients buy Puerto Rico bonds using leverage. In simple terms, buying with leverage means borrowing to invest. Once again, leverage increases risk. In many cases, UBS clients were using so much leverage that their gains or losses would be doubled.
3. Junk Bond Status: In 2014, S&P downgraded Puerto Rico’s general bonds to junk status. A Junk bond is a high-risk asset. Junk bonds are risky and volatile. While they do offer some opportunities for investors seeking to speculate, these investments are not appropriate for conservative investors.

You May Be Entitled to Recover Compensation for Your Losses

If you are an investor who has sustained significant losses investing with UBS in Puerto Rico, you may be entitled to seek compensation for your damages. More specifically, if you now believe that you had an unreasonably largely percentage of your portfolio in UBS bonds, or if you borrowed money from UBS, you should speak to a qualified attorney today. Your claim deserves a comprehensive investigation.

If you were mistreated in any way by UBS or any other brokerage firm, you deserve full and fair compensation for your damages. The Sonn Law Group can help. Please call our office today at 1-877-959-6467 or use our online contact form to request a free, no-obligation review of your case.