Last week, the Securities and Exchange Commission (SEC) initiated administrative proceedings against UBS Financial Services Inc. of Puerto Rico and one of its former branch managers for improperly supervising one of its former brokers. The former broker allegedly advised customers to invest in UBS Puerto Rico affiliated mutual funds, using credit from a UBS Puerto Rico affiliated bank. Such a move exposed the customers to losses, while the broker allegedly profited.
UBS Puerto Rico has agreed to pay $15 million dollars to settle the case with the SEC, which will be put into a fund for investors who were harmed by this alleged misconduct. The former branch manager also agreed to settle the SEC’s charges by paying $25,000 as a penalty and stepping out of his role as a supervisor for one year.
In addition, the SEC filed a separate complaint against UBS Puerto Rico representative Jose Ramirez, Jr., from the Guaynabo branch. According to the SEC, Ramirez profited $2.8 million solely from advising his customers to use money from UBS Bank USA lines of credit to buy extra shares in UBS Puerto Rico closed-end mutual funds.
The SEC also accused Ramirez of concealing this alleged misconduct by having those same customers transfer the money to a third party bank before putting it into UBS Puerto Rico brokerage accounts. These investments allegedly lost value, forcing customers to choose between paying down part of the loans or risk liquidation of their investments.
Among the allegations made in these cases is that UBS Puerto Rico did not have the proper system in place to detect and prevent this type of securities fraud. According to the SEC, the brokerage firm was privy to accusations of investment misconduct regarding accounts Ramirez managed on two separate occasions, but lacked procedures that would ensure follow-up with these types of claims. Under industry rules, brokerage firms must design and implement a system to reasonably supervise its brokers and follow up on red flags. If firms do not do this, they can be held liable for their broker’s undetected misconduct.
If you have invested with UBS Puerto Rico and lost money as a result, our securities lawyers at Meyer Wilson may be able to help. Call us for a free case evaluation and learn how we may be able to help you take legal action.