Overconcentrated Puerto Rico Bonds Claim Against Advisor Angel Aquino-Velez

Sonn Law Group was recently retained to represent investors in a second FINRA Arbitration claim against Morgan Stanley Smith Barney (“Morgan Stanley”) on behalf of elderly customers of Morgan Stanley Financial Advisor Angel Aquino-Velez, whose portfolio was dangerously concentrated in Puerto Rico bonds. This is the second such case where Sonn Law Group has been retained to represent customers of Angel Aquino-Velez who were overconcentrated in Puerto Rico bonds.

The Statement of Claim alleges that Aquino recommended an unsuitable investment strategy of overconcentrating an elderly couple’s retirement savings in a single high risk bond issued by the Puerto Rico Public Finance Corporation (PFC), a subsidiary of the Puerto Rico Government Development Bank.

The Puerto Rico Public Finance Corporation was widely recognized as having the poorest credit quality among the already poor credit quality of most Puerto Rico municipal bond offerings at the time.

In August 2015, the Puerto Rico Public Finance Corporation became the first Puerto Rico municipal bond issuer to default on its debt. The Puerto Rico Public Finance Corporation bonds that Morgan Stanley recommended and sold to these elderly investors are now worth $6.75, down more than 93% from their initial par value purchase price of $100.

This case represents the second time Sonn Law Group has been retained recently on behalf of customers of Angel Aquino-Velez and Morgan Stanley involving issues of overconcentration in Puerto Rico debt. Sonn Law Group recently filed a similar claim on behalf of an investor who lost more than $2.9 million after Aquino-Velez and Morgan Stanley advised her to invest more than 70% of her portfolio in just three speculative and high risk Puerto Rico bonds issued by the Puerto Rico Sales Tax Financing Corp. (“COFINA), Puerto Rico Aqueduct and Sewer Authority (PRASA) and Puerto Rico Government Development Bank (GDB).

            These cases are especially egregious because Morgan Stanley violated what Morgan Stanley’s own website describes as the “Golden Rule” for every investor: diversify your investments. Morgan Stanley’s website describes portfolio diversification as “perhaps the most basic component” in constructing a stable investment portfolio.

            In the case of Puerto Rico bonds, Puerto Rico has at least 17 different entities that have issued municipal bonds in recent years. These bond issuers include:

• Puerto Rico Employees Retirement System (ERS)
• Government Development Bank for Puerto Rico (GDB)
• Puerto Rico Aqueduct and Sewer Authority (PRASA)
• Puerto Rico Electric Power Authority (PREPA)
• Puerto Rico Highways & Transportation Authority (PRHTA)
• Puerto Rico Housing Finance Authority (PRHFA)
• Puerto Rico Industrial Development Company (PRIDCO)
• Puerto Rico Infrastructure Financing Authority (PRIFA)
• Puerto Rico Public Buildings Authority (PBA)
• Puerto Rico Public Finance Corporation (PFC); and
• Puerto Rico Sales Tax Financing Corporation (COFINA)

            The Puerto Rico government’s ownership of and/or subsidies to many of these issuers make it extremely difficult for investors to achieve meaningful diversification among different issues of Puerto Rico bonds. Thus, investors who owned multiple different issues of Puerto Rico debt may have been needlessly exposed to a significant geographic risk, on top of Puerto Rico’s significant credit risk.

If you or someone you know has suffered losses in Puerto Rico bonds recommended by your Financial Advisor, Sonn Law Group may be able to help recover your losses. Sonn Law Group is a nationally recognized law firm that represents investors in claims against broker-dealers, investment firms and other financial institutions. Call Sonn Law Group today at 844-689-5754 or complete our “contact form” for a free consultation.