Exclusive: UBS was warned of Puerto Rico loan practices, e-mails show
By Suzanne Barlyn
NEW YORK (Reuters) - A UBS AG branch manager in Puerto Rico warned bank officials that brokers for the firm had urged customers to engage in improper loan practices, more than two years before the bank made a $5.2 million settlement over the matter with the island’s financial regulator, according to internal bank correspondence reviewed by Reuters.
The documents seen by Reuters reflect the branch manager’s allegations that UBS financial advisers encouraged investors to use their brokerage accounts as collateral to borrow money and buy larger quantities of poorly-performing closed-end bond funds packaged by UBS.
They suggest that the branch manager told two local bank officers about the alleged loan misconduct. The branch manager says he was told that an audit had been performed, and that he was "totally wrong" about his allegations.
In a series of e-mails written in 2012 and 2013 to a UBS compliance officer and a regional manager, former UBS branch manager Carlos Capacete in San Juan wrote about employees at the now-closed Guaynabo branch engaging in improper loan practices. Some of those funds lost almost two-thirds of their value between March 2011 and October 2013 and haven't recovered.
UBS spokeswoman Karina Byrne said the firm disagrees with Capacete's version of events. "As is a matter of public record, Mr. Capacete brought his own claims against the firm and they were found by an arbitration panel to be without merit, and his appeal from that decision was denied," Byrne said.
Capacete's claim, dismissed by a Financial Industry Regulatory Authority arbitration panel in 2014, alleged that he was paid less than branch managers on the U.S. mainland.
Capacete said the arbitrators didn't consider appropriate Puerto Rico law and also sanctioned UBS $5,000 for withholding documents until late in the proceeding. FINRA declined to comment.