FINRA Orders More Fines Linked to Puerto Rico Bonds

Washington, DCThe Financial Industry Regulatory Authority (FINRA) has ordered more fines be paid out linked to the sale of Puerto Rico bonds. The fines were handed out after allegations were made that certain financial institutions failed to properly supervise employees trading bonds in Puerto Rico and allegedly downplayed the risks associated with the bonds. Additionally, FINRA has handed out other fines linked to stockbroker fraud in its stockbroker arbitration hearings.

According to The Wall Street Journal (10/13/15), FINRA fined a unit of Spain’s Banco Santander $2 million for its actions in the sale of Puerto Rican municipal bonds, including failing to supervise employee trading. Santander has also agreed to pay around $4.3 million in restitution to customers who lost money as a result of Santander’s lack of oversight. In agreeing to the settlement, Santander did not admit to wrongdoing in its actions.

Santander is not the first financial institution to pay settlements linked to Puerto Rico bond funds. In September, the U.S. Securities and Exchange Commission (SEC) announced it and FINRA had reached an agreement with UBS Financial Services Incorporated of Puerto Rico (UBSPR) to pay $34 million for failing to supervise a broker whose customers invested in UBSPR-affiliated mutual funds while using money that was borrowed from a UBSPR-affiliated bank. As a result, UBSPR will pay $34 million to U.S. regulators and restitution to clients affected by the Puerto Rico bond funds.

Among the allegations against the UBS former broker are that he downplayed the risks associated with the closed-end funds and misled customers about the risks of investing in funds using borrowed money. The SEC alleged UBSPR failed to have proper procedures in place to prevent or detect the broker’s misconduct.

In June, FINRA ordered UBS to pay $1 million to a Puerto Rican retiree, who alleged UBS brokers recommended the closed-end funds even though they were unsuitable for the investor. The investor, Juan Burgos Rosado, alleged that when he expressed concern about his losses he was encouraged to hold on to the bonds, but ultimately wound up with around $735,000 in losses from his $1 million investment.

Investors who believe they have been misled by their brokers may be able to file a FINRA arbitration against the broker to recover money lost as a result of the broker’s actions. Among unethical actions for a stockbroker are recommending unsuitable investments, churning an account to increase commissions or misleading the investor about the risks associated with an investment.