Individuals with UBS Puerto Rico funds are certainly feeling the pain of Standard & Poor’s and Moody’s decision to depreciate Puerto Rico’s bonds to “junk” status last week. Speculators predict that other rating agencies are likely to follow suit and rate Puerto Rico’s bonds as junk very soon.
“The territory has been distressed for some time,” commented Peter Mougey, a partner at the Levin, Papantonio law firm and director of the firm’s Business Torts and Securities Litigation departments. “But unfortunately, less scrupulous advisors continued promoting the funds due to the area’s tax status, among other things, and raking in unjustifiable fees and costs off the backs of their clients.”
Puerto Rico currently faces $70 billion in debt and is seeking to raise funds through a bond offering. These bonds carry an 8% to 10% interest rate, a clear indication of the risk associated with the territory’s economy.
Unfortunately, UBS has worn so many hats, from advisor to underwriter to consultant, its conflicts of interest prevented objective and candid advice, says Mougey.
UBS Financial advisors have sold the conflict ridden securities in large concentrated amounts to their own clients. These investors have been devastated, according to Mougey.
We expect more trouble to come for the UBS mutual funds.