UBS Hit With $4.8 Million Arb Award in Puerto Rico Bond Case
(Updated with comment from UBS spokesperson.)
A divided arbitration panel ordered UBS Financial Services to pay two individuals and a holding company nearly $4.8 million over the sale of Puerto Rico bonds and closed-end funds, the latest in a long string of awards tied to sales made as the U.S. territory in 2013 headed toward the equivalent of municipal bankruptcy.
The claimants–Eugenia Fidalgo Gutierrez, Mercedes Fidalgo Gutierrez and Fidalgo Gutierrez Holding Corp., in San Juan, Puerto Rico–were awarded $4,654,289 in compensatory damages for breach of contract and rescission (or repurchasing of the assets by UBS) and another $142,557.52 in compensatory damages for breach of fiduciary duty. They had requested total damages of about $15 million, including over $10.4 million tied to rescission, according to the award document.
One member of the three-person, all-public panel, William D. Goren, partially dissented, concurring with the panel’s award “except for the damages for rescission from which I respectfully dissent,” the award document said. The arbitrator did not provide further explanation or delineate which portion of damages were tied to rescission.
“Although the arbitrators awarded less than the full damages claimants requested, UBS is disappointed with the decision to award any damages, with which we respectfully disagree,” a spokesman for the wirehouse said in a statement. “UBS notes that the decision in this case was based on the facts and circumstances particular to these individual claimants, and is not indicative of how other panels may rule with regard to other customers who invested in similar products.”
The Fidalgo Gutierrez party’s San Juan attorney, Francisco A. Feliu Nigaglioni, said he could not immediately comment on the matter.
In its 2019 statement of answers, UBS requested the claims be dismissed in their entirety, with prejudice, and that all Finra forum fees be assessed against the claimants.
The panel of arbitrators denied UBS’s last-ditch motion in May for a directed verdict in which the company asserted that the claimants failed to meet their burden of proof and that the claims should be dismissed as “untimely based upon the Securities Act of Puerto Rico’s two-year Statute of Limitations,” according to the award document.
The panel also denied UBS’s request for expungement on behalf of brokers Miguel Pascual and Eduardo Gonzalez, who were not named as respondents in the arbitration proceeding, even though the claimants did not raise objections to the request, the document said.
Pascual, now registered with Nationwide Planning Associates, and Gonzalez, still registered with UBS, each have 40-plus years in the industry and 20-plus client dispute ‘disclosures’ on their records, according to their BrokerChecks. All of Pascual’s 29 disclosures and Gonzalez’s 21 disclosures, most of which are settled, came in 2014 or later and appear to relate to the sales of Puerto Rico bonds and closed-end funds.
Additionally, UBS is on the hook for $18,750 of $19,500 of the session fees for one pre-hearing in December 2019 and 12 hearings in March and April of this year, according to the award document.
The Fidalgo Gutierrez decision echoed a resolution reached in a similar case in 2019, when another divided panel of arbitrators ordered UBS to pay $4.88 million to a couple and two family members who had alleged their UBS brokers used “unsolicited” lines of credit to purchase the bonds and closed-end funds.
UBS has been involved in more claims than any other bank that was operating in Puerto Rico at the time of its economic collapse, according to Securities Litigation and Consulting Group, an expert witness firm that works with investors. The firm has resolved cases representing $2.8 billion of the $3.4 billion in aggregate claimed damages that have been filed, according to the Swiss bank’s 2020 annual report released March 29.