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Securities Fraud Blog

Greco & Greco, P.C.

W. Scott Greco

Fight Investment Fraud

Greco & Greco's lawyers represent investors to recover losses caused by securities fraud, churning, lack of suitability, negligence, sales of unregistered securities, unauthorized trading, and other misconduct by stock brokers, investment advisors, financial planners and their firms.

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UBS

SEC and FINRA FINE UBS OVER PUERTO RICO BOND FUNDS

The SEC and FINRA have brought charges and fined UBS relating to sales practices and supervision of their UBS Puerto Rico Bond Funds.

The SEC press release and Orders can be found here: http://www.sec.gov/news/pressrelease/2015-217.html.  The SEC alleged that UBS Financial Services of Puerto Rico (UBSPR) failed to supervise its broker in relation to solicited loans used to purchase additional UBSPR closed end funds, while failing to disclose the risks of this strategy and misrepresenting the safety of the strategy.  The SEC further alleged that UBSPR did not implement reasonable supervisory procedures and had inadequate systems in place to prevent and detect this wrongful conduct. 

UBS was censured and fined over fourteen million dollars.

FINRA also fined UBSPR for actions related to its Puerto Rico Bond funds - see the press release here (http://www.finra.org/newsroom/2015/finra-sanctions-ubs-puerto-rico-185-million-supervisory-failures) which states the following:

“...for more than four years, UBS PR failed to monitor the combination of leverage and concentration levels in customer accounts to ensure that the transactions were suitable given the customers’ risk objectives and profiles. The firm failed to implement a reasonably designed system to identify and prevent unsuitable transactions in light of the unique Puerto Rican economy, in which retail customers typically maintained high levels of concentration in Puerto Rican assets and often used those highly concentrated accounts as collateral for cash loans. Despite UBS PR’s knowledge of these common practices, it failed to adequately monitor concentration and leverage levels to identify whether certain customers’ CEF transactions were suitable in light of the increased risks in their existing portfolio.”

The above sales practices and lack of supervision have formed the basis of hundreds of FINRA arbitration claims pending against UBS and UBSPR.  If you would like to speak to an attorney about possible claims related to UBS of Puerto Rico bond funds, please read more about these claims at Greco & Greco’s website (http://www.securities-lawyers.net/ubs_puerto_rico.html) and contact Scott Greco for a free consultation (http://www.securities-lawyers.net/contact.html).

Posted by W. Scott Greco on 10/09/15.
Closed End Funds ( CEF )Puerto RicoArbitrationBondsBrokerage FirmsUBS Financial Services of Puerto RicoUBSFINRAMutual FundsSECSecurities FraudSuitabilityPermalink

Success of FINRA Arbitration Claims against UBS regarding Puerto Rico Bond Funds

To date, FINRA Arbitration Panels have issued five awards relating to claims filed by investors against UBS and UBS of Puerto Rico regarding their Puerto Rico Closed End Bond Funds (CEFs). 

The Awards (for cases filed after the 2013 crash of the CEF market) are summarized below:

1.  Bauza v. UBS Financial Services of Puerto Rico, et al..  Greco & Greco represented the Claimant in this case which resulted in the first award against UBS regarding the Puerto Rico CEFs.  UBS claimed that the Claimant only had $8,000 in net losses from the funds, but the panel awarded $200,000.00.  The case was tried in Washington, DC.

2.  Rosado v. UBS Fin. Serv. of Puerto Rico, et al.  Claimant sought $1,033,596 in damages.  The arbitration panel issued a written opinion (not common in FINRA arbitrations) making the following findings:  a.  “In the process of reducing its exposure in the CEFs by some 75%, UBS undertook an internal push for its brokers to sell its inventory to customers;” b. “this account was extremely over-concentrated and clearly unsuitable for Claimant;”  and c.  “proper and required supervision could have prevented Claimant’s losses or at least limited them greatly.”

The panel Ordered UBS to rescind the sales of the CEFs by repurchasing Claimant’s account for $1,000,000.

3.  Ramis v. UBS Fin. Serv. of Puerto Rico, et al.  The Claimants in this case requested 2 - 2.5 million dollars in compensatory damages.  The panel awarded $250,000 against UBS.

4.  Rodriguez Gonzalez v. UBS Fin. Serv. of Puerto Rico, et al.  Claimants requested damages at the end of the hearing of 3 to 6 million dollars.  The panel awarded $2,545,000.00. 

5.  Lopez Del Valle v. UBS Fin. Serv. of Puerto Rico et al.  This case involved a large number of Claimants, however, all but three Claimants settled their claims prior to the final hearing.  The orignal Statement of Claim requested ten million dollars in damages, but the award is not clear how much of those damages were requested by the three remaining Claimants.  The arbitration panel awarded $2,395,402.00 in compensatory damages, interest from the filing of the Statement of Claim, $50,000 in costs, $5,000 in expert witness fees, and significantly, $479,079.80 in attorneys fees.

In summary, all of the arbitration panels that have heard these cases have issued awards in favor of Claimants, with one also awarding attorneys fees.  If you would like to speak to an attorney about possible claims related to UBS of Puerto Rico bond funds, please read more about these claims at Greco & Greco’s website (http://www.securities-lawyers.net/ubs_puerto_rico.html) and contact Scott Greco for a free consultation (http://www.securities-lawyers.net/contact.html).

Posted by W. Scott Greco on 09/04/15.
Closed End Funds ( CEF )Puerto RicoArbitrationBondsBrokerage FirmsUBSFINRAFraudMutual FundsSuitabilityPermalink

First FINRA Arbitration Award Against UBS of Puerto Rico Regarding Bond Funds

Greco & Greco is pleased to report the first FINRA Arbitration Award against UBS Financial Services of Puerto Rico relating to the crash of UBS closed end bond funds in 2013 which were sold to Puerto Rico residents.  W. Scott Greco represented the Claimant customer in the case of Bauza v. UBS Financial Services of Puerto Rico, et al.  The arbitration panel awarded $200,000 in damages to the Claimant, despite claims by UBS that Claimant’s net out of pocket losses were less than $10,000. 

The case involved a heavy over-concentration of the Claimant’s UBS account in proprietary UBS closed end bond funds pursuant to UBS’s recommendations.  The funds invested heavily in Puerto Rico bonds using leverage (a speculative investment technique), and had significant geographic concentration risk.

Read about the arbitration award in this Reuters article.

If you wish to discuss claims againt UBS involving these funds, please contact Scott Greco for a free consulation.

Posted by W. Scott Greco on 05/18/15.
ArbitrationBondsBrokerage FirmsUBS Financial Services of Puerto RicoUBSFINRAFraudMutual FundsSecurities FraudSuitabilityPermalink

FINRA Fines Multiple Firms for Leveraged and Inverse ETF Sales

As noted in this press release from FINRA, Wells Fargo, Citigroup, Morgan Stanley, and UBS were fined for failing to supervise sales of leveraged and inverse ETFs.  FINRA also alleged failures of a reasonable basis to recommend the securities (i.e. suitability).

FINRA found that:  “from January 2008 through June 2009, the firms did not have adequate supervisory systems in place to monitor the sale of leveraged and inverse ETFs, and failed to conduct adequate due diligence regarding the risks and features of the ETFs. As a result, the firms did not have a reasonable basis to recommend the ETFs to their retail customers.”

Many inverse and leveraged exchange traded funds, including some by Proshares and Direxion, were designed to seek multiples of the exchange they were designed to track.  However, many of these ETFs were designed to reset daily, thereby creating drastic differences in their performance over time compared to the index they were designed to track.  We have seen many situations where many of the risks of these funds were not disclosed to customers.

The prospectus for the Proshares leveraged and inverse ETFs from September 2007 makes clear that these investments were an aggressive day-trading tool, not an investment appropriate or suitable for most retail investors.  Specifically, the prospectus stated:

p. 7:  ‘The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.’
p. 8:  ‘The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments.’
p. 9:  ‘Certain Funds are ‘leveraged’ funds in the sense that they have investment objectives to match a multiple of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from these Funds’ use of leverage, which is that for periods greater than one day, the use of leverage tends to cause the performance of a Fund to be either greater than or less than the index performance times the stated multiple in the fund objective, before accounting for fees and fund expenses’

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  ‘inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.’

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 05/24/12.
ArbitrationBrokerage FirmsCitigroupMorgan StanleyUBSWells FargoETFFINRASecurities FraudSuitabilityPermalink

Unsuitable ETF trading results in large losses for investors

Greco & Greco’s attorneys have represented a significant number of investors over the past several years who have suffered large amounts of losses in their securities accounts due to the improper and unsuitable trading of ETFs by their brokers.  Many inverse and leveraged exchange traded funds, including some by Proshares and Direxion, were designed to seek multiples of the exchange they were designed to track.  However, many of these ETFs were designed to reset daily, thereby creating drastic differences in their performance over time compared to the index they were designed to track.  We have seen many situations where many of the risks of these funds were not disclosed to customers. 

The prospectus for the Proshares leveraged and inverse ETFs from September 2007 makes clear that these investments were an aggressive day-trading tool, not an investment appropriate or suitable for most retail investors.  Specifically, the prospectus stated:

? p. 7:  ?The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.?
? p. 8:  ?The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments.?
? p. 9:  ?Certain Funds are ?leveraged? funds in the sense that they have investment objectives to match a multiple of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from these Funds? use of leverage, which is that for periods greater than one day, the use of leverage tends to cause the performance of a Fund to be either greater than or less than the index performance times the stated multiple in the fund objective, before accounting for fees and fund expenses.?

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  “inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 01/23/11.
ArbitrationBrokerage FirmsUBSETFFINRASuitabilityPermalink

Businesses left out of Auction Rate Securities Settlements?

As discussed in this Bloomberg article, the settlements reached by regulators regarding auction rate securities sales with many of the large brokerage firms fail to help medium to large businesses who were also sold ARS.  Although the required buyouts in the settlements with UBS, JPMorgan Chase, Morgan Stanley, and Wachovia Corp. reached $35 billion, this amount only approximates 18% of the $200 billion estimated to be still outstanding. 

Although the settlements call for the firms to use their best efforts to help institutional investors stuck with the frozen ARS, they fall short of requiring a buyback.  This situation may force mid-sized to large companies to seek redress on their own through the arbitration or court system.  Please contact Greco & Greco if your business is holding frozen ARS as a result of fraudulent sales practices of a brokerage firm.

Posted by W. Scott Greco on 08/22/08.
ArbitrationAuction Rate Securities (ARS)Brokerage FirmsCitigroupJ.P. MorganMerrill LynchMorgan KeeganUBSWachoviaState RegulatorsPermalink

Consequential Damages for Auction Rate Securities Unresolved

As set out in this Kansas City Star article Wachovia and JP Morgan Chase have joined UBS, Morgan Stanley, and Citigroup in settling charges related to their sale of Auction Rate Securities.  Although the settlement agreements with exact details are not completed, it appears that the firms will be buying back frozen auction rate securities sold to individuals and small businesses.
Left open is the recovery of consequential damages suffered by buyers of the allegedly liquid ARS who couldn’t access their cash.  The press releases and articles related to the settlements reference that customers will be able to seek recovery of their consequential damages through arbitration, with the firms admitting liability, but not conceding damages. 
If you or your business suffered monetary damages as a result of having your funds frozen in ARS, please contact Greco & Greco for a free consultation with one of our attorneys to discuss options for recovery of your damages.

Posted by W. Scott Greco on 08/21/08.
Auction Rate Securities (ARS)Brokerage FirmsCitigroupJ.P. MorganMorgan StanleyUBSWachoviaPermalink

UBS Charged With Fraud in Auction Rate Securities Sales

The State of Massachusetts filed a Complaint today against UBS claiming UBS engaged in fraud and dishonest and unethical conduct with regard to its sales of Auction Rate Securities (ARS).  Link to Complaint and Exhibits.  In a 101 page Complaint, Massachusetts references voluminous emails it obtained from UBS supporting its claims, and further charges UBS with books and records violations for failures to produce additional documents.

The Complaint describes UBS’s “all-out” effort to market ARS, and especially “troubled student loan-backed auction rate certificates,” to offset increasing inventory from corporate investors who were selling the ARS due to concerns about the market.  Despite awareness of serious problems with the market, UBS was initiating conference calls in August 2007 with its financial advisors to encourage the sale of ARS to retail clients and “unload this paper.”

The Complaint further describes the incredible conflicts of interest surrounding the market:  “by setting up a situation where it was actively controlling whether auctions would clear and what rate they would clear at, UBS had (unbeknownst to its customers) set up a situation which put it in a fundamentally conflicted role between its desire to keep its underwriting clients happy with the promise of low financing costs and its “moral obligation” to retail customers to keep the auctions it had set up afloat.”

If you are an investor stuck with Auction Rate Securities, and you would like a free consultation to discuss your legal options with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 06/26/08.
Auction Rate Securities (ARS)Brokerage FirmsUBSState RegulatorsMassachusettsPermalink

Auction Rate Securities Failures

Auction Rate Securities and Auction Rate Preferred Securities (ARS) are securities made up of long term bonds or preferred stock with variable interest rates and yields.  The yields are periodically reset through Dutch auctions.  ARS are often marketed and sold by a single dealer with the only resale market being through a successful auction.  Problems have arisen in recent months as a result of the failures of the auctions, leaving investors in the lurch and unable to redeem the security.  As set out in this SmartMoney article, ARS have been marketed as a safe, liquid alternative to money market funds.  Investors believing they had their money in a safe liquid investment are understandably concerned by the failures in the marketplace for these securities, and our firm has been monitoring the situation closely and discussing the matter with concerned individuals and businesses.  Misrepresentations and omissions in the sale of a security can form the basis for a claim for securities fraud as well as other legal claims for recovery of damages.

As recently as 2006, the SEC censured 15 of the largest brokerage firms for sales and auctions of Auction Rate Securities. As stated by the SEC in its press release, “since the firms were under no obligation to guarantee against a failed auction, investors may not have been aware of the liquidity and credit risks associated with certain securities.”  The SEC further stated that “the firms violated Section 17(a)(2) of the Securities Act of 1933, which prohibits material misstatements and omissions in any offer or sale of securities.”  The fifteen firms which were censured were Bear, Stearns & Co., Inc., Citigroup Global Markets, Inc., Goldman Sachs & Co., J.P. Morgan Securities, Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated/ Morgan Stanley DW Inc., RBC Dain Rauscher Inc., A.G. Edwards & Sons, Inc., Morgan Keegan & Company, Inc., Piper Jaffray & Co., SunTrust Capital Markets Inc., Wachovia Capital Markets, LLC, and Banc of America Securities LLC.  Read the SEC Order here.

UBS appears to be the first firm to actually begin lowering the values of auction rate securities on its customers’ statements, as reported by many news sources on March 29 including this Reuters article.  Citing a Wall Street Journal article, Reuters reported that the markdowns could exceed 20 percent for some customers.  Additional concessions from other firms may be forthcoming as the first quarter of 2008 ends.

State Regulators, including Massachusetts, have also begun investigations of the auction rate securities market with Massachusetts reportedly issuing subpoenas to UBS, Merrill Lynch, and Bank of America. 

The Financial Industry Regulatory Authority (FINRA) released an Investor Alert on March 31, 2008 regarding auction rate securities which purports to set out various options for investors stuck with these products.  FINRA, which claims to be a “trusted advocate for investors,” notably fails to mention contacting an attorney or filing an arbitration claim as options.  If you are an investor who was sold Auction Rate Securities, and you would like to discuss your legal options with an attorney, please Contact Greco & Greco.

Link to Securities-Lawyers.net Auction Rate Securities page.

Posted by W. Scott Greco on 03/03/08.
Auction Rate Securities (ARS)BondsBrokerage FirmsA.G. EdwardsBanc of AmericaBear StearnsCitigroupDeutsche BankFerris Baker WattsLehman BrothersMerrill LynchMorgan KeeganMorgan StanleyPiper JaffrayRBC Dain RauscherSuntrustUBSWachoviaFINRAState RegulatorsMassachusettsSuitabilityPermalink

Fraud charges by SEC against Former UBS broker

Fraud charges related to the sale of a hedge fund operated as a ponzi scheme were settled with a former broker of UBS according to this CCH Wall Street article..  The SEC alleged in its Complaint that the UBS broker made misrepresentations regarding the GLT Venture Fund, L.P. while raising $14.1 million for the fund.  The broker agreed to pay disgorgement and civil penalties in addition to an injunction forbidding future violations.

Posted by W. Scott Greco on 01/25/08.
Brokerage FirmsUBSHedge FundsSECPermalink

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