(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 island’s 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 & Poor’s data show. Last month, the debt staged its longest rally in a year.
Reuters reported the U.S. probe earlier today. The U.S. Attorney’s Office in Puerto Rico didn’t respond to a message seeking comment after business hours. Authorities haven’t 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.
All On Wall Street articles are archived after 7 days. REGISTER NOW for unlimited access to all recently archived articles, as well as thousands of searchable stories. Registered Members also gain access to exclusive industry white paper downloads, web seminars, blog discussions, the iPad App, CE Exams, and conference discounts. Qualified members may also choose to receive our free monthly magazine and any of our daily or weekly e-newsletters covering the latest breaking news, opinions from industry leaders, developing trends and growth strategies.