Investors in Santander Securities closed-end bond funds have suffered substantial losses after being forced to liquidate hundreds of millions of dollars in the funds to meet margin calls. Many of the investors were seeking tax-free income, so they sheltered millions in local municipal bond funds, which have been hit hard as the island struggles with a weak economy, rising interest rates, and significant debt loads. Investment losses were magnified because many investors were encouraged by their brokers to borrow money through credit lines to invest in the funds, which generated handsome commissions. Now, a number of investors have been forced to liquidate hundreds of millions of dollars in these funds to meet margin calls.
Santander Securities is one of the island's market leader in closed-end funds, operating five bond funds:
First Puerto Rico Tax-Exempt Fund I-VII
First Puerto Rico Tax-Advantaged Target Maturity Fund I-II
First Puerto Rico AAA Target Maturity Fund I-II
First Puerto Rico Target Maturity Income Opportunities Fund I-II
First Puerto Rico AAA Fixed-Income Fund
First Puerto Rico Intermediate Fixed-Income Fund
The funds that Santander Securities manages are themselves highly leveraged. For example, the First Puerto Rico Tax-Exempt Fund has a leverage ratio of up to 53 percent, meaning for every dollar of customer assets it holds, it has roughly another dollar of assets bought with borrowed money. Santander Securities' other Puerto Rico funds are similarly leveraged and have declined substantially in value. However, investors may be able to recover their investment losses by filing Financial Industry Regulatory Authority (FINRA) arbitration claims against Santander Securities that would be heard in San Juan, Puerto Rico.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.