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D. Daxton White
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The White Law Group is a national securities fraud, securities arbitration, investor protection and securities regulatory/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida. We pride ourselves on providing quality legal services to our clients and handle securities... More
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  • UBS Puerto Rico SEC Findings 0 comments
    Oct 20, 2013 7:39 PM

    According to a recent Investment News report, UBS's proprietary closed-end bond funds in its Puerto Rico family of funds have suffered significant decreases in value.

    The Securities and Exchange Commission (the SEC) has actually been monitoring this situation for some time. In 2012, the SEC charged UBS Financial Services Inc. of Puerto Rico and two executives with making misleading statements to investors, concealing a liquidity crisis, and masking its control of the secondary market for 23 proprietary closed-end mutual funds.

    UBS Puerto Rico agreed to settle the SEC's charges by paying $26.6 million that will be placed into a fund for harmed investors.

    According to the SEC's order instituting settled administrative proceedings against UBS Puerto Rico, the firm knew about a significant "supply and demand imbalance" and discussed the "weak secondary market" internally.

    The SEC also alleged that UBS Puerto Rico misled investors and failed to disclose that it controlled the secondary market, where investors sought to sell their shares in the funds.

    The SEC's charges further state that UBS Puerto Rico later withdrew its market price and liquidity support in order to sell 75 percent of its closed-end fund inventory to unsuspecting investors.

    The SEC's Order also states that UBS Puerto Rico's parent firm determined in the spring of 2009 that UBS Puerto Rico's growing closed-end fund inventory represented a financial risk, and directed the firm to reduce its inventory by 75 percent to reduce that risk and "promote more rational pricing and more clarity to clients . . . [so] prices transparently develop based on supply and demand." To accomplish the reduction, UBS Puerto Rico executed a plan dubbed "Objective: Soft Landing" in one document, which included:

    •Undercutting numerous marketable customer sell orders to "eliminate" those orders and liquidate UBS Puerto Rico's inventory first, preventing customers from selling their shares.

    •Not disclosing that UBS Puerto Rico was drastically reducing its inventory purchases.

    •Soliciting customers to sell recently purchased primary offering shares back to the closed-end fund companies, so UBS Puerto Rico could then sell closed-end funds to those customers from its highest inventory positions.

    Finally the SEC alleged that UBS Puerto Rico increased solicitation efforts to further reduce its inventory while making misrepresentations about the funds.

    UBS Puerto Rico agreed to settle the SEC's charges and to pay $11.5 million in disgorgement, $1.1 million in prejudgment interest, and a penalty of $14 million.

    The White Law Group continues to investigate the liability that brokerage firms may have for the improper sales of UBS Puerto Rico closed-end funds.

    If you are concerned about your investment in a UBS Puerto Rico Fund and would like to speak to a securities attorney about whether you have a potential FINRA dispute resolution claim, please call The White Law Group's Boca Raton, Florida office at 561-807-6804 for a free consultation.

    For more information on The White Law Group's UBS Puerto Rico Fund investigation visit www.whitesecuritieslaw.com/2013/10/14/up.../.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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