$18.5 Million FINRA Arbitration Award Against UBS; 2 Investors Represented By Timothy J. Dennin Compensated


The Financial Industry Regulatory Authority (FINRA) has reported an $18.5 million record security arbitration decision against UBS Financial Services to clients who invested in Puerto Rico closed-end municipal bond funds. The clients were represented by the prominent securities and investor rights attorney Timothy J. Dennin.

The plaintiffs, Rafael Vizcarrondo and Mercedes Imbert De Jesus, sought to be reimbursed $19 million for damages and $1.2 million in commissions and fees. The claims involved violation of contract, breach of fiduciary duty and other securities violations.

What happened

UBS, through its financial advisors, recommended non-diversified closed-end Puerto Rico municipal bond funds, which resulted in Vizcarrondo’s UBS liquid assets being allocated to overconcentrated products. The investment objective, as stated to Vizcarrondo, was to provide high income free from U.S. and Puerto Rico income taxes.

An unsuitable investment

Mr. Vizcarrondo started questioning the UBS financial advisors about the safety of his investments in the USB funds. The advisors recommended that he should keep purchasing additional shares in the company, and that he should hold on to his existing funds’ position. This led to overconcentration of bond issuers in Puerto Rico municipal, which was unsuitable for his investment’s aim.

A serious omission

He also claimed that UBS did not disclose the growing illiquidity risks of USB funds shares that he owned. They did not inform him that UBS would be unable to liquidate his significant investments over a period of some months due to its small and daily declining trading volume.

What happens now

A UBS spokesperson has indicated that the firm is still contemplating its options, including the possibility of the case being heard in federal court. It is rare, however, for courts to invalidate a FINRA arbitration award.

Although the clients got less than the full damage compensation they had requested, UBS disagrees with the decision to compensate for any damage whatsoever. The two investors will receive $ 12.7 million for loss compensation and $ 2.5 million for interest fee. They will also be awarded $ 3.3 million in attorney’s fees and $163,000. for witness fees.

UBS Financial Services Inc. of Puerto has been experiencing pressure from clients who have lost millions of dollars in Puerto Rico closed-end bond funds filled with Puerto Rico municipal securities issued by various agencies. The industry had a 7 billion debt that bottomed out over the 2013 summer, and it has been struggling since then.