Earlier this month, a federal judge in Puerto Rico has declined to certify a class of investors who claim UBS AG's Puerto Rican affiliate manipulated the market for its closed-end mutual funds and misled investors on risks, agreeing with a magistrate judge that the investors had not all been told the same thing. Promising she would explain her reasoning in a separate order, U.S. District Judge Carmen Consuelo Cerezo adopted a magistrate judge's recommendation that she deny class certification.
UBS sold billions of dollars-worth of the proprietary close-end municipal bond funds to residents through the UBS Puerto Rico affiliate.
The investors say UBS didn't disclose that it was setting the price for the funds itself instead of letting them ride on the market and that it was buying and selling shares in the funds in order to keep prices up. The closed-end funds were only available over the counter, according to court documents.
The U.S. Securities and Exchange Commission had fined UBS $26.6 million for similar allegations in May 2012.
In the suit filed the following August, investors Carmelo Roman, Ricardo Roman Rivera and SDM Holdings Inc. said the financial firm's alleged deception caused them and other Puerto Rican investors to lose money when the regulator stepped in and the funds' value tanked.
U.S. Magistrate Judge Bruce J. McGiverin recommended against letting the plaintiffs go forward as a class in March, saying that individual issues surrounding what sales pitch each investor heard would predominate over issues that could apply to them all.
Judge McGiverin said that the investors were essentially arguing that UBS Puerto Rico had misrepresented the funds and manipulated the market for them. Because of that, they had to actually show they relied on the alleged misstatements, the judge said.
In contrast, had they claimed UBS Puerto Rico had failed to disclose information, the court could assume they relied on the lack of information, Judge McGiverin said.
Attorneys for the investors said their argument revolved around UBS Puerto Rico's failure to tell investors that it controlled the funds' pricing and UBS Puerto Rico also did not tell investors it had invested heavily in unstable government pension bonds.
Meanwhile, the hundreds of Puerto Rican investor arbitration cases are working their way slowly through the FINRA arbitration system.
The case is SDM Holdings Inc. et al. v. UBS Financial Services Inc. of Puerto Rico et al., case number 3:12-cv-01663, in the U.S. District Court of the District of Puerto Rico.
The experienced securities fraud attorneys at Colling Gilbert Wright & Carter are actively investigating and filing FINRA arbitrations for losses associated with marketing and sale of UBS Puerto Rico proprietary closed-end bond funds. If you have lost money in one or more of these funds, contact our offices today for a free case evaluation