Former registered UBS Puerto Rico broker José G. Ramirez-Arone Jr. has pled guilty to one count of bank fraud for his role in a fraudulent scheme to obtain and misuse non-purpose credit lines for purchasing securities. The scheme led to improperly generated commissions of more than $1 million.
Broker Advisor Advised Clients to Commit Fraud
José G. Ramirez-Arone Jr. (known by the nickname “Whopper”), 60, formerly of San Juan, Puerto Rico, admitted that while employed by UBS Financial Services Inc. of Puerto Rico (UBS-PR) he participated in a scheme wherein clients fraudulently opened non-purpose credit lines with the intent of using the loan proceeds to buy securities. Importantly, the loans were not supposed to be used to buy securities.
UBS Clients Open Non-Purpose Credit Lines Taking Advantage of Interest Rates
Since the payout interest rate of the CEFs exceeded the interest rate of the non-purpose credit lines, Ramirez-Arone admitted that he advised clients that they could capitalize on the difference between the interest rates by engaging in arbitrage. In other words, the broker orchestrated the improper conduct, recommending that his clients borrow money from UBS’s banking affiliate and use the loan proceeds to buy UBS’s risky Puerto Rico bond funds.
Broker Told Clients How to Circumvent Bank Policies
To bypass UBS’s policy against using the credit line to buy securities, Ramirez-Arone advised clients to misrepresent the reason for needing the non-purpose credit lines. After the credit lines were issued, he advised clients to transfer the funds to a third-party bank and then transfer those same funds back into the UBS system to buy UBS’s risky CEFs.
The process, though arduous, allowed Ramirez-Arone to hide the origin of the funds. The exercise, which took place from around January 2011 through September 2013, created approximately $1,225,500 in commissions for Ramirez-Arone.
The non-purpose credit lines were offered by UBS Bank USA (UBS-UT), a Utah-based subsidiary of UBS Financial Services, Inc. UBS’s CEFs held mostly risky Puerto Rican municipal bonds.
UBS Broker Faces Prison Time and Hefty Fines
According to his CRD report, Ramirez has been the subject of 74 customer complaints between 2012 and 2018, four of which were denied and two were closed without action. Many of the customer complaints have been settled for millions of dollars. Ramirez was registered with UBS Financial Services Inc. in Guaynabo, Puerto Rico and UBS Financial Services Incorporated of Puerto Rico in San Juan, Puerto Rico from 1997 to 2014.
He faces sentencing on February 8, 2019, which could lead to up to 3 years in prison and up to a $3 million fine. He is also facing a civil lawsuit from the SEC.
Massive Fallout from UBS Puerto Rico Bond Scandal
Though the criminal conviction against UBS Puerto Rico broker Ramirez-Arone is the first in the UBS Puerto Rico bond scandal, the bank has faced thousands of complaints from investors who lost money.
A Securities and Exchange Commission (SEC) investigation revealed fraudulent activities by UBS Puerto Rico brokers dating back to 2006. To date, the Puerto bond fraud scandal is estimated to have cost the Swiss bank nearly $330 million.
Many UBS Puerto Rico Investors Have Valid Claims to Recover Their Investment Losses
The CEF’s were the lynchpin of the Whopper’s scheme. UBS-PR sold billions of dollars of these risky Puerto Rico bond funds to Puerto Rico residents, generating hundreds of millions of dollars of revenue for its brokers, for UBS-PR, and for UBS-PR affiliates. Puerto Rico investors collectively have suffered billions of dollars of losses in the CEFs when the Puerto Rico economy cratered several years ago. Ramirez recommended the improper credit lines as a means to sell millions of dollars of the CEFs to his clients.
Thousands of Puerto Rico investors have filed FINRA arbitration claims against UBS-PR and its U.S. affiliate, UBS Financial Services, Inc., to recover their investment losses. Dimond Kaplan & Rothstein has represented dozens of clients who lost millions of dollars with UBS after their brokers recommended that they buy UBS’s risky CEFs and individual Puerto Rico bonds.
Have You Lost Money at UBS in UBS Puerto Rico CEFs or Puerto Rico bonds?
If you lost money investing with UBS or lost money investing in the Puerto Rico market, contact an experienced investment fraud attorney at Dimond Kaplan & Rothstein, P.A. today. Dimond Kaplan & Rothstein, P.A. has filed claims on behalf of more than one hundred Puerto Rico investors who lost money in UBS Puerto Rico bond funds.
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