Puerto Rico Municipal Bonds Have Led to Serious Investor Losses
Learn more about The Frankowski Firm’s current investigations into claims
Like many other governmental entities, Puerto Rico issued municipal bonds as a way to raise revenue. Municipal bonds, like other bonds, are attractive to investors because they are relatively safe, typically stable investments. Municipal bonds have the added incentive of being tax free. This incentive was particularly attractive for the Puerto Rico bonds because it was available even to investors outside of the Commonwealth. The Puerto Rico bonds proved highly attractive to investors, and Puerto Rico sold over $70 billion dollars in municipal bonds, which of course became a debt for Puerto Rico; debt it is now struggling to pay.
The bonds were purchased by individual investors, but they were also purchased and bundled into proprietary closed end bond funds by firms such as UBS. Firms like UBS recommended unsuitably high concentrations of the Puerto Rico municipal bonds to their clients, exposing them to unnecessary risk. This risk was ratcheted up by the use of leverage (borrowed money) to purchase even more of the bonds.
In 2013, the Puerto Rico municipal bonds suffered a sharp decline in value, brought on by financial conditions in the commonwealth and since exacerbated by additional financial stressors, including the devastation caused by Hurricane Maria. Investors who purchased their interest in the bonds through bond funds like those sold by UBS have suffered even worse losses because of those funds’ use of leverage to purchase the bonds.
In February 2014, Standard and Poor’s rated the Puerto Rico general obligation bonds as “junk” bonds – meaning an investment in the bond was considered highly risky and below investment grade. This obviously disincentivized further investment in the bonds. By 2015, Puerto Rico defaulted on a $58 million bond payment and by January 2016 had defaulted on another $174 million in bond debt.
As a result, the value of Puerto Rico’s municipal bonds (and any corresponding closed-end bond funds) has fallen dramatically, causing substantial losses for investors. Making matters worse, many of those investors were overly-concentrated in the bonds based on their brokers’ promise that these were stable and safe investments.
Regulators made allegations against UBS related to its sales of Puerto Rico bond funds. FINRA, for example, found that UBS failed to implement an adequate supervisory system to prevent unsuitable sales of the bond funds. UBS likewise failed to supervise the over-concentration of the funds in customer accounts and failed to assess the suitability implications of the increased risk use of leverage.
UBS customers, and customers of other firms which sold Puerto Rico bond funds, such as Wells Fargo, Morgan Stanley, Merrill Lynch, and RBC Securities, may have a claim against their broker and/or brokerage firm for negligence, violations of securities regulatory rules, failure to supervise, and breaches of fiduciary duty.
Bonds and bond funds we are investigating
The Frankowski Firm is investigating customer claims related to investments in Puerto Rico municipal bonds and the following bond funds:
- Puerto Rico Tax-Free Target Maturity Fund, Inc.
- Puerto Rico Tax-Free Target Maturity Fund II, Inc.
- Puerto Rico Investors Bond Fund I
- UBS IRA Select Growth & Income Puerto Rico Fund P.R. Fixed Income Portfolio
- UBS IRA Select Growth & Income Puerto Rico Fund U.S. Equity Portfolio I
- UBS IRA Select Growth & Income Puerto Rico Fund U.S. Equity Portfolio III
- UBS Trust Company of Puerto Rico
- UBS IRA Select Growth & Income Puerto Rico Fund P.R. Equity Portfolio
- UBS IRA Select Growth & Income Puerto Rico Fund U.S. Equity Portfolio II
- UBS IRA Select Growth & Income Puerto Rico Fund U.S. Equity Portfolio IV
- Puerto Rico AAA Portfolio Target Maturity Fund
- Puerto Rico GNMA US Government Target Maturity Fund
- Puerto Rico Fixed Income Fund
- Puerto Rico Fixed Income Fund II
- Puerto Rico Fixed Income Fund III
- Puerto Rico Fixed Income Fund IV
- Puerto Rico Fixed Income Fund V
- Puerto Rico Fixed Income Fund VI
- Multi-Select Securities Puerto Rico Fund
- Puerto Rico AAA Portfolio Bond Fund
- Puerto Rico AAA Portfolio Bond Fund II
- Puerto Rico Investors Tax-Free Fund
- Puerto Rico Investors Tax-Free Fund II
- Puerto Rico Investors Tax-Free Fund III
- Puerto Rico Investors Tax-Free Fund IV
- Puerto Rico Investors Tax-Free Fund V
- Puerto Rico Investors Tax-Free Fund VI
- Puerto Rico Mortgage-Backed & U.S. Government Securities Fund
- Puerto Rico Short Term Investment Fund
At the Frankowski Firm, we have experience handling claims on behalf of investors who have lost money as a result of the collapse of the Puerto Rico municipal bonds. We are dedicated to holding accountable those whose negligence or fraud has caused harm to others. This guiding principle is why so many aggrieved investors throughout the country trust us to protect their rights after their stockbrokers, financial advisors, and/or brokerage place them in an unsuitable product or dupe them into a misrepresented investment. As one of the few law firms handling securities fraud in civil court and before FINRA arbitration panels, we know first-hand how important our civil justice system is.
For more information about Puerto Rico municipal bonds, contact us
If you or someone you know has lost money or was misled into the purchase of a Puerto Rico municipal bond or related bond fund, while a UBS customer or otherwise, please call the Frankowski Firm at 888.741.7503 or fill out this contact form.
Related Article: Puerto Rico Municipal Bond Collapse Continues