With Puerto Rico’s economy taking it in the shins for nearly the past decade, financial advisors that have been pedaling products tied to the territory face mounting legal woes.

“Knowingly recommending concentrated debt positions that were dependent on Puerto Rico’s economy opened investors to unnecessary and unwarranted risk,” commented Peter Mougey, a shareholder with the Levin, Papantonio law firm and director of the firm’s business torts and securities litigation departments.

UBS Puerto Rico has been selling proprietary municipal and leveraged bond funds to its own clients. Puerto Rico’s floundering economy has resulted in U.S. credit rating agencies downgrading these Puerto Rico bonds to nearly “junk” status.

“We’ve seen this behavior before; Wall Street underwrites billions in proprietary securities, it makes millions of dollars on fees and mark-ups, and then shifts the risk to its own clients’ portfolios.” Mr. Mougey says. “In the end, Wall Street makes its money and passes the risk from the concentrated positions to its own clients.  It’s wrong.”

The potential exposure may not be limited to UBS as funds managed by other firms may contain debt from Puerto Rico. Some reports place Puerto Rican debt at affecting nearly 75% of U.S. municipal bonds.

“Concentrated positions are  not appropriate for any investors,” Mr. Mougey added. “Advising such investors to expose themselves to that risk is reckless and only considers the advisor’s interest to earn fees.”

Joshua is a writer and researcher with Ring of Fire. You can follow him on Twitter @Joshual33.