The Financial Industry Regulatory Authority today censured UBS Financial Services of Puerto Rico (UBSPR) for supervisory failures and fined the UBS subsidiary a total of $18.5 million, with the Securities and Exchange Commission adding $15 million in disgorgement, interest and penalties against UBSPR in the same case.
FINRA charged UBSPR with shirking its supervisory responsibilities by failing to ensure the suitability of transactions in Puerto Rico closed-end funds (CEFs) for certain clients, and for encouraging certain clients to open lines of credit (LOCs) to purchase more shares of Puerto Rican CEFs.
FINRA says the poor supervision persisted "for more than four years," with UBSPR failing to "monitor the combination of leverage and concentration levels in customer accounts to ensure that the transactions were suitable given the customers' risk objectives and profiles."
In settling the case, UBSPR neither admitted nor denied the charges.
Those closed-end funds were heavily invested in Puerto Rican bonds, which have plummeted in value, especially in August, "requiring the customers to pay down a portion of the loans or risk having their investments liquidated," the SEC said in a statement.
The SEC charges that UBSPR and a branch officer, Ramiro Colon, failed to supervise a registered rep, Jose Ramirez, in UBSPR's Guaynabo branch office. It was Ramirez, the SEC says, who encouraged clients to invest in UBSPR-affiliated closed-end funds using money the clients borrowed from a UBSPR-affiliated bank — UBS Bank USA.
UBSPR and the bank prohibited using such loans to purchase securities, and the practice exposed investors to losses while producing profits for the former UBSPR broker, the SEC alleged.
UBSPR agreed to settle the SEC case by paying $15 million that will be placed into a fund for investors harmed in the fraud.
