Judgment day in SEC case against UBS execs

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  • October 29, 2013

The following story in Caribbean Business on October 28, 2013:

An administrative judge is expected to issue a ruling Tuesday in the U.S. Securities Exchange Commission’s civil case against UBS Puerto Rico officials Miguel Ferrer and Carlos Ortiz.

Administrative Judge Brenda P. Murray had a deadline of October 29 to issue her decision after an extension of six months and another of 45 days.

The SEC alleges that Ferrer, formerly the chairman & CEO of UBS Puerto Rico, and Ortiz, the managing director of Capital Markets at UBS Puerto Rico, played “significant roles in a fraudulent ‘pump-and-dump’ scheme that misled thousands of UBS Puerto Rico customers into buying and holding substantial amounts of shares in UBS Puerto Rico closed-end funds” that caused them heavy losses.

In May 2012, UBS Puerto Rico agreed to pay $26.6 million to settle SEC charges related to misrepresenting and omitting material facts about its Puerto Rico closed-end bond funds, but Ferrer and Ortiz opted to contest the charges.

The SEC complaint accuses Ferrer and Ortiz of making misleading statements to investors, concealing a liquidity crisis and masking UBS’ control of the secondary market for 23 proprietary closed-end mutual funds (CEFs). They allegedly promoted CEFs to investors as safe, high-yield investments whose liquidity was ensured by a robust secondary market, while they were actually working to sell off UBS CEF shares because the firm determined they posed too large of a financial risk. While aggressively marketing CEFs to investors, UBS dumped 75% of its holdings, often undercutting client orders to sell its shares first, the SEC said.

As part of its settlement with the SEC, UBS was supposed to hire an independent consultant to review the adequacy of UBS Puerto Rico’s closed-end fund disclosures and trading & pricing policies, procedures and practices. UBS was supposed to adopt and implement all recommendations. UBS spokeswoman Karina Byrne said the firm had complied with this aspect of the SEC order, but that neither the report nor the changes in policy adopted by the firm are public information.

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