A $5 million putative class of plaintiffs accusing UBS AG of soliciting to elderly investors risky mutual funds that ended up losing billions asked a Puerto Rico federal court last week to block UBS' attempt to transfer the suit to New York, noting the strong ties the case has to Puerto Rico. The plaintiffs instead suggested consolidating their case with a similar one currently pending. The case at hand alleges UBS Puerto Rico and Popular Securities LLC breached their fiduciary and contractual duties to thousands of investors by selling them risky closed-end mutual fund securities made specifically for Puerto Rico. The suit was originally filed in the Southern District of New York earlier this summer but was voluntarily dismissed so that it could be filed in Puerto Rico, after discussions between the two groups of plaintiffs discovered that their two cases shared common legal and factual issues.
The investors allege that the defendants misrepresented twenty-three closed-end mutual funds, which invested in bonds in the unsteady Puerto Rican economy, as safe fixed-income securities that would preserve their main investments while providing tax-free income. In actuality, the funds were "ticking time bombs" that had about half their assets financed through borrowing and invested in hundreds of millions of dollars of debt securities issued by the Puerto Rican government.
The investors moved to consolidate their suit with the pending suit in June. In July, UBS and Popular filed to transfer the case to New York arguing that the investors were bound to litigate the case in New York. The plaintiffs countered that the New York forum selection clause in UBS' customer contracts is not the only forum selection clause involved in the suit, and it does not cover all of the plaintiffs' claims. They also argue that Puerto Rico's "exceptionally strong interest" in the case makes the commonwealth the most appropriate forum for the plaintiffs to litigate their claims.