WASHINGTON — The Securities and Exchange Commission is seeking a permanent injunction against José Ramírez, the former UBS broker who a federal judge ruled broke the law by misleading customers about the safety of Puerto Rico closed-end funds.
The SEC filed the motion June 22 in federal court in Puerto Rico, where a judge April 30 issued a partial summary judgment against Ramírez. The injunction, if granted, would amount to a court order forever prohibiting Ramírez from violating securities laws. While some courts and attorneys have questioned whether such injunctions are overly broad, federal law gives the SEC the power to seek them in situations where there is “a reasonable likelihood of future violations.”
The SEC charged Ramírez in late September 2015, alleging that he misled customers about the safety of the closed-end funds (CEFs) and pocketed an extra $2.8 million by having customers use proceeds from lines of credit (LOCs) with UBS Bank to purchase shares in the UBS Puerto Rico funds. The court found that Ramírez knew it was against his firm’s policy to allow customers to use lines of credit to purchase securities, but schemed to avoid detection by directing customers move money to their personal accounts and then deposit it into a brokerage account managed by himself.
Ramirez lied to customers about this, the judge found, and did not inform them that if the value of their collateral decreased below a certain level, they could be subject to a maintenance call and the firm could liquidate the customer’s investments to satisfy it. That is what happened in 2013, when a series of credit downgrades hit Puerto Rico. Some of the funds lost 20%-30% of market capitalization, and by the end of September 2013, 37 of Ramirez’s customers were subject to maintenance calls of over $37 million.
Ramírez did quite well for himself financially, the SEC has said. He earned commissions on the CEFs his customers purchased and from 2011-2013, he received over $12.9 million in total compensation. The court found that more than $5.5 million of that was attributable to customer LOCs.
In their filing, SEC lawyers Russell Koonin and Sean O’Neill argued that Ramírez could still pose a risk to investors, even though he is not currently working in the securities industry. He is not yet 60, has denied the SEC’s charges and refused to testify, and has refused to consent to an injunction, the SEC told the court.
“The egregiousness of Ramírez’s conduct, the frequent reoccurrence of his conduct, the high-level of scienter (knowledge of wrongdoing) by which it was conducted and Ramírez’s current failure to acknowledge the nature of his wrongdoing, and his potential for continuing the same misconduct are significant enough to warrant the permanent injunctive relief the commission seeks here,” Koonin and O’Neill wrote. The undisputed facts are that Ramírez knowingly profited handsomely from a massive fraud over many years. He could currently do so again.”
The injunction, if granted, would be only the first step in the SEC’s efforts to punish Ramírez. Previous SEC filings have indicated that it plans to ask the court to order Ramírez to pay a civil monetary penalty and disgorge ill-gotten gains, and he will likely be permanently barred from the industry.