Updated Saturday, November 1, 2014 as of 6:21 AM ET

UBS Loans to Puerto Rico Fund Investors Said to Face U.S. Probe

(Bloomberg) -- U.S. authorities in Puerto Rico are investigating allegations that a former UBS AG broker improperly advised clients to borrow money to make investments, a person briefed on the probe said.

Investigators are examining what UBS employees knew about the use of non-purpose loans to clients who bought into closed- end funds, the person said, asking not to be identified because the inquiry is confidential. A customer said last year he was given credit to buy risky bond funds holding the islandís government debt.

UBS said in October it had put the broker on leave while examining loans to clients. The firm has concluded a review and terminated the employee, said Karina Byrne, a spokeswoman for the Zurich-based bank.

Yields on Puerto Rico bonds soared to records last year as fiscal strains cast doubt on the ability of the commonwealth and its agencies to repay debt. Puerto Rico obligations lost 20.5% last year, the steepest drop since at least 1999, Standard & Poorís data show. Last month, the debt staged its longest rally in a year.

Reuters reported the U.S. probe earlier today. The U.S. Attorneyís Office in Puerto Rico didnít respond to a message seeking comment after business hours. Authorities havenít accused the firm of wrongdoing.

The loans were made to UBS clients through a Utah bank subsidiary, and the firm has agreed to transfer the debts to its Puerto Rican unit, the person briefed on the matter said.

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