A FINRA arbitration panel ordered UBS to pay a group of former clients approximately $3 million for damages related to the sale of closed-end funds consisting of Puerto Rico municipal bonds.
Although UBS lost the case, it dodged a much bigger penalty of $10 million in damages originally sought by the clients.
Several members of the group settled their claims for an undisclosed amount prior to the panel's decision, according to a record of the award.
UBS denied the claims made by the group, and further asked the panel for $500,000 in damages against clients Andres Ricardo Gomez and another client with a similar name, Andre Raoul Gomez, records show.
The arbitration panel decided on claims from remaining clients Ana Teresa Lopez-Gonzalez, Andres Ricardo Gomez and Wave Management, acting as trustee for AG Investment Trust.
The arbitrators, issuing their decision this week, ordered UBS to pay approximately $545,000 to Lopez-Gonzalez and $1.85 million to Gomez and Wave Management, plus an additional $55,000 to cover their costs and $479,000 in attorney fees.
The panel also rejected UBS' counterclaims against Gomez.
"Although the arbitrators awarded less than the full damages claimants requested, UBS is disappointed with the decision to award any damages, with which we respectfully disagree," the firm said in a statement.
The clients' attorney, Jacob Zamansky, who is head of an eponymously-named New York law firm, could not be reached for comment.
ADDING UP THE BILL
UBS said that the case is unique and "not indicative of how other panels may rule with regard to other customers who invested in similar products."
The firm has been fighting off claims by Puerto Rican investors since the market for the island's municipal bonds suffered steep price declines in 2013. It's hard to determine how much the Swiss-owned wirehouse may end up paying out. Some arbitration cases are settled before arbitrators make a decision, while others result in awards that fall short of the damages originally sought by investors.
For example, an arbitration panel awarded $250,000 in damages against UBS to two former clients – far less than the $2.5 million that the clients had asked for.
The number of clients seeking damages, however, is high, in part, because the closed-end funds of the island's bonds were popular due to the significant taxes advantages for Puerto Rico residents. UBS also mentioned this in a press statement, saying that the funds "received excellent returns that frequently exceeded the returns available through investments in other bonds or bond funds."
But investor claims have been piling up. In its most recent earnings report, UBS said that the firm is facing claims totaling more than $1.1 billion.
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