In October 2014, UBS Puerto Rico settled with the Office of the Commissioner of Financial Institutions for the Commonwealth of Puerto Rico (“OCFI”) over UBS's lack of compliance and supervision as some brokers recommended some “mostly senior, low net worth investors with conservative investment profiles” use non-purpose loans to further concentrate their accounts in UBS PR closed-end bond funds. The UBS-OCFI settlement is available here.
As part of the settlement, UBS paid a $3.5 million fine and up to $1,681,556 in restitution to 34 investors. UBS also committed to continue to evaluate whether other clients had been inappropriately sold closed end funds with the proceeds of non-purpose loans. On August 20, 2015 UBS PR, referencing the OCFI settlement, sent out a letter offering a small amount ($3,500 in this example) for a release “in which you waive any claims related to the UBS Puerto Rico closed-end funds now or in the future.” A redacted copy of the letter is available here.
If a senior, low net worth, conservative investor had accepted UBS PR’s recommendation to concentrate her account in UBS Puerto Rico closed end funds and use a non-purpose loan to buy even more of the funds, it is likely she suffered substantial losses. The recent UBS letter says nothing about how much the UBS client lost in UBS’s closed end funds or how UBS determined that $3,500 was a fair offer for a complete release of its client’s current and future legal claims over the funds.
Any UBS client who receives such a letter should be on guard and seek professional advice to determine both their losses and potential remedies before accepting UBS’s offer.
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