UBS Ordered to Pay Two Investors $18.4M Over Puerto Rico Bonds

WASHINGTON – A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay two Puerto Rican residents $18.4 million over losses they experienced after investing in closed-end mutual funds concentrated in Puerto Rico bonds.

The two residents, Mercedes Imbert De Jesus and Rafael Vizcarrondo, requested that UBS pay more than $20 million, including not less than $19 million in compensatory damages. They made their investments through UBS Puerto Rico (UBSPR), which was named as a party to the arbitration.

They had also named an individual associated with UBS but eventually dismissed their claims against him in February.

Peter Stack, a spokesperson for UBS, said in an emailed statement that although the arbitrators awarded less than the full damages the two individuals requested, "UBS is disappointed and strongly disagrees with the decision to award any damages."

Vizcarrondo was an experienced investor "who made a fully informed decision to concentrate his portfolio in UBS Puerto Rico closed end funds because of [the funds'] long history of providing excellent returns and substantial tax advantages," he added.

The firm is considering its options to overturn the award, according to Stack.

The largest portion of the $18.4 million award is made up of $12.7 million in compensatory damages. UBS and UBSPR will also have to pay about $2.5 million in interest that was accrued between Dec. 31, 2013 and March 13, 2016. The award also covers roughly $3.2 million in attorneys' fees and $163,000 for expert witness fees.

The FINRA award is the latest in a string of actions from the self-regulator concerning individuals who claimed firms over-concentrated their investments in Puerto Rico bonds before the commonwealth's economy and ability to repay its debt sharply declined roughly three years ago. Puerto Rico has since defaulted on multiple debt payments and is currently dealing with roughly $70 billion in debt and at least $46 billion in unfunded pension liabilities.

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Enforcement Law and regulation Puerto Rico
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