Securities arbitrators on Wednesday ordered UBS AG to pay an investor $200,000 for losses incurred by its Puerto Rico closed-end bond funds, marking one of the first rulings in a flood of cases involving the risky securities.
A Financial Industry Regulatory Authority (FINRA) arbitration panel in Washington found two UBS units liable in the case, which alleged securities fraud, misrepresentation and other misdeeds, according to the ruling.
Many of the Puerto Rico funds sold by UBS were highly concentrated in the debt of Caribbean island's government and related entities. UBS is defending against hundreds of arbitration claims filed with FINRA, collectively seeking more than $900 million in damages.
Some of the funds lost half to nearly two-thirds of their value between March 2011 and October 2013, amid fears about the size of Puerto Rico's debt burden and the weakness of its economy. They have failed since to recover.
"UBS is disappointed with the decision to award any damages, with which we respectfully disagree," a spokesman said. He added the decision was not indicative of how other cases might play out, since it was based on the investor's specific case.
Over 20 years, the funds provided excellent returns, he said.
The investor, Yolanda Bauza, had sought between $357,000 and $625,000 for her losses when filing the claim in 2013, according to the ruling. UBS had pegged the losses at about $8,000 because of investment income she had received before the funds soured in 2013.
Bauza had invested money she received in a settlement from an auto accident, said her attorney, W. Scott Greco in McLean, Virginia. She moved from Puerto Rico to Washington in 2011, Greco said.
"The case is significant because it will make UBS reevaluate how they value these cases for settlement," said Jeffrey Sonn, a lawyer in Fort Lauderdale, Florida who was not involved in the arbitration, but who represents other investors in cases against UBS. "It puts UBS on notice they are at risk for significant awards in favor or Puerto Rico investors."
The arbitrators, as is typical, did not provide reasons for their decision. They also denied UBS' request to remove details about the case from the public records of two UBS Puerto Rico brokers who were involved in advising Bauza.
Another arbitrator, in a separate ruling on Tuesday, denied an investor's $8,000 claim against UBS. The investor did not have a lawyer, according to the ruling.
(Reporting by Suzanne Barlyn)
UBS must pay $200,000 to Puerto Rico fund investor
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