A Puerto Rico-based duo is asking a federal appeals court to overturn a lower court’s dismissal of their lawsuit against UBS Financial Services.
In the suit, Vanessa Santini Hernández and Lourdes González Gutiérrez argued the firm violated their conservative risk preferences by engaging in a “scheme” to sell them risky bonds and securities.
The duo filed the original suit in the Puerto Rico court last February. Santini is a doctor, while González is a 79-year-old San Juan retiree who previously worked in the mortgage banking industry.
According to the complaint, they relied on UBS’s counsel in investment matters, with the money invested representing their financial security. According to Santini, the firm understood her situation and desire for conservative investment objectives.
In the complaint, the plaintiffs accused UBS of selling them Puerto Rico bonds and shares of closed-end mutual funds to boost their own profits, despite these products being excessively risky.
According to the complaint, the plaintiffs were falsely told that the shares in the portfolio were PR Bonds guaranteed by the government. The plaintiffs alleged that UBS advisors “explicitly” recommended the duo purchase the closed-end funds and bonds and continue holding the securities.
“The artificial market demand for the PR securities created by the selling scheme caused a surplus and excessive supply that far exceeded any market demand that made such investments much less worthy of credit or value and was an immediate cause of the hopeless fall of the PR bonds market and proximate cause of the breach of their contract with them and causing thus loss to the plaintiff,” the complaint read.
According to the complaint, the plaintiffs didn’t suffer financially until Puerto Rico’s debt growth outpaced economic growth. In a July 2012 report from the New York Federal Reserve, it asserted that putting Puerto Rico on a path “of robust, sustainable and inclusive growth remains a work in progress,” according to an analysis from the Journal for Corporate Finance.
Within several years, credit agencies degraded several Puerto Rico bond issues to junk status, Puerto Rico defaulted on several bond commitments, and, according to NBC News, the government filed for the largest municipal bankruptcy in U.S. history in 2017. The government officially exited bankruptcy in 2022 with a massive public debt restructuring.
On June 30, a Puerto Rico superior court agreed with a UBS motion to dismiss Santini and González’s case. The court cited the length of time between the alleged wrongdoing and the case itself and claimed the suit lacked details on how UBS sought to deceive the investors.
According to the judge, the complaint “lacks particularized allegations as to what materially false or misleading misrepresentations or omissions were made by UBS, why those statements or omissions were false or misleading, when those statements or omissions were made, or who made the supposedly false or misleading misrepresentations or omissions.”
Nevertheless, the plaintiffs notified the court that it was appealing the decision to the First Circuit Court of Appeals, whose jurisdiction includes Puerto Rico.
UBS declined to comment prior to publication.
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