An arbitration panel ordered UBS to pay $250,000 to two former clients in the latest case stemming from the sale of municipal bonds and closed-end funds in Puerto Rico.
Though UBS lost the case, the wirehouse avoided a much bigger penalty; the clients had asked the panel for damages up to $2.5 million for breach of contract and securities fraud.
"It was a legal victory, but the financial results were not as expected," says Francisco Pujol, an attorney for Francisco Ramis and Ines Maria Ramis.
The panel also did not order UBS to pay attorney's fees.
Mr. Ramis had invested with the wirehouse after selling a family business for approximately $7 million and splitting the profits with his sister, his attorney says.
Mr. Ramis' broker, Jose Ramirez Jr., was close to the Ramis family, Pujol says. In fact, Ramirez and Mr. Ramis had the same nanny when they were young, though not at the same time, according to Pujol.
Ramis' portfolio was over-concentrated in the type of closed-end fund that has figured in numerous arbitration cases involving clients seeking damages against UBS, according to Pujol.
Moreover, UBS provided Ramis with a $1 million non-purpose loan which was invested into the closed-end fund. Borrowers are generally not permitted to use non-purpose loans to invest in securities, and the Department of Justice is allegedly investigating loan practices at UBS, according to the firm's recent earnings report. Justice officials declined to comment when asked about the investigation.
While these types of funds had significant tax advantages for residents of Puerto Rico, municipal markets weakened in mid-2013 leading to falling prices for the island's municipal bonds and funds.
Pujol says his clients suffered a net out-of-pocket loss of $650,000.
He thinks that the arbitrators decided that his clients, who were college educated and not a less savvy "little old lady," ought to shoulder some responsibility.
However, Pujol says that the bottom line is that the "arbitrators saw it our way."
MOUNTING LEGAL BILLS?
It isn't clear how much the fallout from the sale of these funds has cost UBS so far. Some cases have been settled outside of arbitration, while others have been decided by arbitration panels -- which do not always award the full amount of damages requested by aggrieved clients.
"The arbitrators in this case awarded only a very small portion of the damages claimants sought. UBS notes that the decision in any case is based on the facts and circumstances particular to the individual claimant, and is not indicative of how other panels may rule with regard to other customers who invested in similar products," a spokesman said.
In its latest earnings report, UBS said that the total claimed damages sought by clients exceed $1.1 billion.
The firm also said the Department of Justice "is conducting a criminal inquiry into the practice of certain customers and a UBS financial advisor of using non-purpose loans to invest in closed end fund securities in violation of their loan agreements and UBS policies."
The firm said it is cooperating with the authorities. A spokesman for the Justice Department declined to comment.
Reuters reported this week that a UBS branch manager, Carlos Capacete, warned executives in emails dated 2012 and 2013 that some UBS advisors on the island may have engaged in improper loan practices.
LOST NEST EGG
In 2014, UBS discharged Ramirez, the financial advisor for the Ramis family, for allegedly encouraging certain clients to reinvest loan proceeds into closed end funds in violation of the firm policy, according to a note in his BrokerCheck file.
FINRA has since barred Ramirez from the industry. His BrokerCheck file currently lists 64 disclosures, most of which are still pending.
Guillermo Ramos-Luina, a lawyer representing Ramirez, could not be reached for comment.
Pujol says that the couple, now in their mid-60s, are devastated by the loss of some of their retirement savings.
"Even though [Mr. Ramis] had this nest egg for his retirement, he has lost it. He will have to continue working for a long time," Pujol says.
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