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Former UBS Broker Tells Frontline That Banks Contributed to Puerto Rico’s Bond Crisis

August 10, 2018 Blog

In the years leading up to Puerto Rico’s bond crisis, evidence from multiple sources pointed to investment banks like UBS as major culprits in the island territory’s financial collapse. While these banks have fought back against allegations of impropriety, they have been largely unsuccessful in avoiding liability in FINRA arbitration, and UBS Group’s Chief Executive Officer recently acknowledged that the bank “could have done things better” as Puerto Rico spiraled toward bankruptcy.

Now, a former UBS broker is adding fuel to the fire, telling PBS’s Frontline that “banks like UBS helped fuel the crisis” in Puerto Rico.

Former Broker Says UBS Encouraged and Overlooked High-Risk Practices as Puerto Rico’s Finances Collapsed

The Frontline article is an interesting read, as it recounts the events leading up to Puerto Rico’s financial collapse through the eyes of Carlos Capacete, a broker who spent 25 years with UBS Puerto Rico before leaving in 2014. Mr. Capacete lodges numerous allegations against UBS in the article, and has himself sued the bank. For its part, UBS claims that Mr. Capacete is a disgruntled former employee, and that it terminated the only broker who was found to have engaged in improper conduct following an internal investigation.

Some of the most noteworthy passages from the article and Frontline’s interview with Mr. Capacete include:

  • “Carlos Capacete[] says he watched as banks like UBS helped fuel the crisis, encouraging the local government to take on billions in debt. . . . When the bond market collapsed, it took with it the savings of thousands of Puerto Ricans. . . . While the Puerto Rican government is not blame-free, Wall Street’s role in pushing the risky debt has been overlooked . . . .”

 

  • “The bonds that were sold that created the huge $74 billion bond debt in Puerto Rico was sold using all the investment bankers in Wall Street. . . . If the banks would have been responsible [and] said, ‘Hey, listen, you can’t borrow this amount so we’re just going to limit this to that,’ we wouldn’t be in this place right now.”

 

  • “[E]ven as research reports started coming out in 2012 raising questions about the sustainability of Puerto Rico’s debt, managers continued to tout the bonds to customers. . . . That sales push, Capacete said, wasn’t just for the bond funds. He says the bank was also pushing financial advisers to sell Puerto Rican clients more loans, using their bond investments as collateral.”

 

  • “The party ended in August 2013 after a major financial publication raised concerns about Puerto Rico’s ability to repay its debt, sending bond prices into free fall. Soon, investors big and small saw their portfolios drop. Puerto Ricans, who’d been heavily concentrated in the island’s bond funds, were hit especially hard, with losses in the billions.”

To date, Frontline reports that UBS Puerto Rico has paid an estimated $415 in fines and damages as a result of more than 1,900 investor claims. Many of these claims are being filed with FINRA, the securities industry watchdog that provides an arbitration forum for investors to recover fraudulent losses from their brokers and advisors.

Did You Lose Money in Puerto Rico Bonds? We Can Help

At Zamansky, LLC, we are actively pursuing numerous investigations and FINRA arbitration claims against UBS and the other investment banks that sold risky Puerto Rico bond investments to their customers. If you lost money in Puerto Rico municipal bonds or proprietary bond funds, we urge you to contact us for a free, no-obligation consultation. To speak with an experienced financial fraud lawyer in confidence, call us at (212) 742-1414 or request an appointment online now.