UBS AG (UBSN) will pay $26.6 million to resolve U.S. regulatory claims its Puerto Rico-based brokerage unit sold shares in mutual funds without disclosing that it was propping up the price of the funds in the secondary market.
UBS Financial Services Inc. of Puerto Rico, starting in 2008, solicited thousands of retail investors, saying a competitive and liquid secondary market contributed to their closed-end mutual funds’ performance, the Securities and Exchange Commission said today in an administrative order that also named two of the firm’s executives.
When investor demand declined, the brokerage sought to maintain the illusion of a liquid market by buying shares into its own inventory from customers who wished to exit the market, the SEC said. The unit later sold 75 percent of its closed-end fund inventory to unsuspecting investors, withdrawing its market price and liquidity support, the agency said.
“UBS Puerto Rico denied its closed-end fund customers what they were entitled to under the law -- accurate price and liquidity information, and a trading desk that did not advantage UBS’s trades over those of its customers,” SEC Enforcement Director Robert Khuzami said in a statement.
The $26.6 million will be placed into a fund for harmed investors, the SEC said.
“Investors who bought Fund shares during this period and continue to hold them have made substantial returns over the past three years,” UBS spokeswoman Karina Byrne said in an e- mailed statement. “We believe that any realized losses incurred by investors who bought Fund shares through UBS during the 2008/2009 period and sold them were less than $5 million.”
The SEC instituted contested administrative proceedings against UBS Puerto Rico’s vice chairman and former chief executive officer Miguel A. Ferrer and its head of capital markets Carlos J. Ortiz.
A phone call to Melvin Brosterman, Ferrer’s attorney, wasn’t immediately returned.
Ortiz said in an e-mailed statement that the SEC’s allegations are “wholly without merit.”
“At all times, I, and the team that I supervise, have been responsible participants in the secondary market for the Funds in an effort to maintain an orderly market,” Ortiz said in the statement. “Any claim by the SEC that Fund investors were misled or mistreated is unfounded.”
To contact the reporters on this story: Joshua Gallu in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Maura Reynolds at email@example.com