DATELINE: San Juan, Puerto Rico
It is easy for tourists from the Mainland to find much to love in San Juan: great paella at Metropol, great history in Old San Juan, great people who love their country and their heritage, etc. But other visitors travel to the island for the sole purpose of exploiting Puerto Rican investors.
These predatory “tourists” are the big banks and Wall Street profiteers who negligently or fraudulently convert investors’ conservative portfolios into a downward spiral of speculation with margin, arbitrage/carry trade activity, and overconcentration of portfolios in Puerto Rico’s own troubled bonds.
Lawyers from Vernon Litigation Group just returned from San Juan, where large numbers of investors have been lured into risky investments in Puerto Rican Municipal Bond Funds that were falsely presented as safe, conservative sources of income.
This developing story is particularly disturbing because banks and brokerage firms (including UBS Financial Services Inc. of Puerto Rico, which was charged with defrauding its own customers in connection with this scheme) specifically targeted Hispanic investors, who – according to a recent study funded by FINRA – traditionally avoid high-risk investments. These banks and brokers knew that conservative investors are drawn to municipal bonds, which have historically been considered safe, tax-free sources of income.
However, this analysis is not true in today’s shaky municipal bond market and it has never been true for bond funds (rather than individual municipal bonds), especially when the brokerage firms recommend that the investor use leverage to invest in these funds. This problem is compounded when the firm sells its own proprietary funds to investors – creating a monster conflict of interest that can take down an entire portfolio when these funds begin to collapse due to falling bond prices and investor liquidations in response. When this death spiral occurs, the brokerage firm’s conflict of interest can lead to its protection of its own best interest at the expense of clients’ (e.g. withholding information while attempting to convince its customers to stay the course to avoid a run on the fund).
Unfortunately, we have seen this scenario before. Based in Naples, Florida, the securities attorneys at the Vernon Litigation Group law firm have conducted aggressive nationwide investigations of hedge funds, structured products, reverse convertibles, municipal bonds, bond funds, hedge funds, non-traded REITs, private equity, EB-5, complex insurance products and strategies, TICS, and various securities fraud cases and Ponzi schemes. The firm’s investigations and advocacy on behalf of investors have been featured in AARP magazine and Forbes. More recently, Vernon Litigation Group’s ongoing investigation in the above products has been reported in Barron’s.
Vernon Litigation Group’s current investigation relating to activities in Puerto Rico involves, among other things, the following products, strategies, and financial firms: Proprietary funds, the use of margin, carry trade, arbitrage, Puerto Rico Bonds, Puerto Rico Preferred Stock, Reverse Convertible Securities, Puerto Rico Conservation Trust Fund Notes, Puerto Rico Global Income Target Maturity Fund, UBS, Banco Popular, Merrill Lynch, Oriental Financial, Western Bank, and Santander Securities.