Exclusive: UBS faces criminal probe for Puerto Rico bond fund sales - lawyers

Thu Jun 19, 2014 4:50pm EDT
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By Emily Flitter

NEW YORK (Reuters) - U.S. authorities are probing UBS AG UBSN.VX for criminal fraud after a former broker in Puerto Rico allegedly directed clients to improperly borrow money to buy mutual funds that later plunged, according to lawyers representing some of the investors.

At issue is whether UBS executives in Puerto Rico and in the United States knew proceeds from loans made by a Utah unit of the Swiss bank were used in a way that violated its own lending rules. If they knew about the practice and did not stop it, they could be criminally responsible for the alleged fraud.

The investigations are the latest headache for UBS, which has faced myriad lawsuits and probes since the financial crisis. Last week, independent analysts estimated that the bank might have to pay $8 billion in fines and settlements linked to alleged price-manipulation in currency markets.

Puerto Rico-based lawyers Harold Vicente-Gonzalez and his son, Harold Vicente-Colon, said they were representing several dozen people who were clients of UBS Financial Services Inc.

They said the investors lost large portions of their savings through investments in closed-end funds whose sales by UBS have been the subject of several investor lawsuits and regulatory probes. Packed with Puerto Rican government bonds that UBS had underwritten, the funds plunged in value at the end of last summer as concerns grew about the weak state of the U.S. territory's economy and its ability to repay its debt.

Karina Byrne, a New York-based spokeswoman for UBS, said the bank had fired the broker, Jose Ramirez, last year and conducted an internal investigation.

She said the bank had disclosed in quarterly reports the existence of regulatory investigations triggered by the bond funds' decline in value. Byrne declined to comment further about the issues that led to the criminal investigation.

The Vicentes said FBI agents had interviewed several of their clients and that the U.S. Securities and Exchange Commission was also involved in the investigation.   Continued...

A man walks past the logo of Swiss Bank UBS on a footbridge connecting two office buildings in Zurich December 19, 2013.  REUTERS/Arnd Wiegmann