(Corrects to explain that investor’s loan was secured by UBS funds, but not used to buy more of the funds, in 9th paragraph.)
By Suzanne Barlyn
Feb 19 (Reuters) - Securities arbitrators have ordered UBS AG to pay an investor $1.45 million for losses incurred by its Puerto Rico closed-end bond funds, according to a ruling.
A Financial Industry Regulatory Authority (FINRA) arbitration panel in San Juan, late Thursday, found two UBS units liable in the case, which alleged securities fraud, misrepresentation and other misdeeds, according to the ruling.
Many of the Puerto Rico funds sold by UBS were highly concentrated in the debt of the Caribbean island’s government and related entities.
Some of the funds lost half to nearly two-thirds of their value between March 2011 and October 2013, amid fears about the size of Puerto Rico’s debt burden and the weakness of its economy. They have failed since to recover.
UBS is defending against hundreds of customer complaints and arbitration claims, collectively seeking $1.5 billion in damages, the firm said in a Feb. 2 disclosure statement on Feb Of those, the firm has resolved $284 million in claims through settlements or the full arbitration process, according to the disclosure.
“Although the arbitrators awarded less than the full damages the claimant requested, UBS is disappointed with the decision to award any damages, with which we respectfully disagree,” a UBS spokesman said in a statement.
Over 20 years, the funds provided excellent returns, he said.
The investor, Christel Marie Bengoa Lopez, filed the case in 2014, seeking $2 million in damages. She had invested a $5 million gift she had received after her father sold his business, according to her claim.
Her UBS broker promoted the funds as safe and conservative investments. He also suggested that Bengoa Lopez tap a UBS-issued credit line, using her investments as collateral, to buy an apartment. But when the funds became worth less than the loan balance, UBS demanded payment in full.
The arbitrators, as is typical, did not provide reasons for their decision.
UBS, in September 2015, agreed to pay almost $34 million to settle charges from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, Wall Street’s industry-funded watchdog, that it failed to supervise fund sales to clients in the U.S. territory.
FINRA arbitrators, in a separate ruling on Thursday, recommended expunging details about another arbitration case from individual public disclosure records for a UBS Puerto Rico executive, former branch managers, and a broker.
The recommendations followed the November 2015 settlement of an investor’s $17 million claim involving the funds, according to the ruling. The settlement terms are unclear. (Editing by Bernadette Baum and W Simon)