UBS Financial Services Incorporated of Puerto Rico (UBS PR), a subsidiary of UBS Financial Services, Inc., agreed to pay fines totaling $34 million to settle charges brought by the SEC and FINRA relating to the failure to reasonably supervise the sales of certain leveraged closed-end funds (“CEFs”) on September 29, 2015.
The SEC alleged in its Order Instituting Administrative Proceedings that “UBS PR failed reasonably to supervise [its broker] Jose G. Ramirez.” The SEC found that Ramirez offered and sold millions of dollars of CEFs to certain customers, who often had to borrow money to purchase the CEFs. Ramirez sold $50 million worth of the CEFs to UBS PR customers from 2011 to 2013. The Puerto Rican bond market collapsed in August/September 2013, and the value of the CEFs declined significantly, meaning that customers now had worthless bonds and were unable to make the payments on the money they had borrowed to buy the CEFs originally. In addition to accepting a public censure from the SEC, UBS PR agreed to pay $15 million in disgorgement, prejudgment interest, and civil penalties.
In its separate disciplinary action, FINRA alleged in its Letter of Acceptance, Waiver and Consent that UBS PR “failed to establish and maintain a supervisory system and procedures reasonably designed to ensure the suitability of transactions in CEFs in certain circumstances.” FINRA specifically noted that UBS PR failed to monitor customer concentration and leverage levels. UBS PR consented to a FINRA censure, a fine in the amount of $7.5 million, and restitution to various customers of $10,978,402.
In connection with the settlements, UBS PR neither admitted nor denied the charges alleged by FINRA or the SEC
UBS PR terminated Ramirez in January 2014; and he was permanently barred from association with any FINRA member in any capacity in August 2014. In addition, the former branch manager in Ramirez’s office agreed, in a separate settlement, to a $25,000 fine and to be suspended from supervisory roles for one year. Since October 2013, however, Ramirez has been named in at least 64 different FINRA customer complaints; and UBS PR and Ramirez are named respondents in several customer-initiated FINRA arbitration proceedings in Puerto Rico.
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