On September 29, 2015, UBS Financial Services Incorporated of Puerto Rico (UBS PR), a subsidiary of UBS Financial Services, Inc., agreed to settle charges brought by the SEC and FINRA relating to its alleged failure to reasonably supervise the sales of certain leveraged closed-end funds (CEFs) by paying fines of $34 million. In connection with the settlements, UBS PR neither admitted nor denied the charges alleged by FINRA or the SEC.
The SEC alleged in its "Order Instituting Administrative Proceedings" that “UBS PR failed reasonably to supervise [its broker] Jose G. Ramirez with a view to preventing and detecting his violations of the federal securities laws from at least 2011 through 2013.” The SEC found that Ramirez “offered and sold millions of dollars of CEFs to certain customers while soliciting them to use LOCs [letters of credit] to purchase such securities and fraudulently misrepresenting the risks of this strategy to them.” All told, Ramirez sold $50 million in CEFs to UBS PR customers from 2011 to 2013. By September 2013, the customers “had received tens of millions of dollars in maintenance calls” regarding their LOCs after the value of their leveraged CEFs declined when the Puerto Rican bond market collapsed. The SEC further found that UBS PR “had inadequate procedures or systems in place” regarding its LOC compliance policy and that it “failed to establish reasonable policies and procedures for follow-up indications of misuse of LOCs.” In addition to accepting a public censure from the SEC, UBS PR agreed to pay $15 million in disgorgement, prejudgment interest, and civil penalties.
For its part, FINRA similarly alleged in its "Letter of Acceptance, Waiver and Consent" that UBS PR “failed to establish and maintain a supervisory system and procedures reasonably designed to ensure the suitability of transactions in CEFs in certain circumstances.” FINRA specifically alleged that UBS PR failed to monitor customer concentration and leverage levels. UBS PR consented to a FINRA censure, a fine in the amount of $7.5 million, and restitution to various customers of $10,978,402.
UBS PR terminated Ramirez in January 2014; and he was permanently barred from association with any FINRA member in any capacity in August 2014. In addition, the former branch manager in Ramirez’s office agreed, in a separate settlement, to a $25,000 fine and to be suspended from supervisory roles for one year. Since October 2013, however, Ramirez has been named in at least 64 different FINRA customer complaints; and UBS PR and Ramirez are named respondents in several customer-initiated FINRA arbitration proceedings in Puerto Rico.
Keywords: securities litigation, UBS PR, Puerto Rico, SEC, FINRA