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Federal Investigation Because of Huge Losses in Local Mutual Funds

Posted: Apr 09, 2014 | Posted in:

U.S. Attorney and FBI have interviewed people of interest , the FICO stands a historic drop in these investments and securities lawyers insist that the situation is not the result of individual actions of brokers

“All these allegations closed mutual funds are virtually identical. They are elderly, disabled withdrawn .” Marie Elsie Lopez Securities lawyer

The Federal Prosecutor’s Office in Puerto Rico and the Federal Bureau of Investigation (FBI , for its acronym in English ) investigates the events that contributed to the fall of the so-called local mutual funds that have allegedly caused millions of dollars in losses investors on the Island.

According to sources in El Nuevo Dia, the U.S. Attorney and the FBI have conducted several interviews with people of interest -including brokers and clients allegedly harmed by the bad advice they received from their financial advisers , as part of an investigation into course .

Although the scope of the investigation is not known fully, and four separate sources consulted by this newspaper say that the prosecution and the FBI inquiring about the practices used different brokers and investment firms in Puerto Rico to promote the purchase of shares twenty investment companies, also known as local mutual funds. The investigation , sources said , also seems more focused on UBS Financial Services of Puerto Rico , the leading investment house on the island.

El Nuevo Día requested a response to the U.S. Attorney , but this declined to confirm or deny that there is an ongoing investigation on the matter.

It also requested a reaction to UBS Financial Services of Puerto Rico , Santander Securities, Popular Securities and Merrill Lynch. At press time , neither UBS , Santander offered or Popular reaction . Merrill , meanwhile , said they have not received any request by federal authorities .

The federal investigation comes at a time when investment companies Island experienced the worst fall ever recorded in its history.

UNPRECEDENTED LOSS . According to the Office of the Commissioner of Financial Institutions ( FICO ) , last year , and in just twelve months, the assets of the local mutual fund companies experienced a collapse of $ 6.203 million.

As a result , the assets of investment companies stood at about $ 9.508 million , the lowest amount in a decade.

The fall in the assets contributed in turn to the local mutual funds called to experience the second year of net losses since 2004.

In 2008 , mutual funds Island lost about $ 356 million , according to FICO .

In 2013 , mutual funds lost Island about $ 2.382 million . That is, the loss recorded last year, is almost seven times greater than the fall that occurred five years ago in the midst of the worst global financial crisis in nearly a century .

“It’s difficult to say what the impact of the loss of that capital,” said Commissioner Rafael Blanco.

“Much of that money came from savings banks because people , maybe more chasing performance favorably viewed these instruments ,” said the banking regulator .

What is certain , according to White , is that the heavy losses that now exhibits the sector , which until 2012 could be described as a success story “will not be an event of short duration .”

BAD FRUIT OF LAW . ” I think the law could something that is counter to the investor. You never concentrates its assets in one place , ” White said, adding that the new investment law passed last year , amended the excessive concentration in securities of Puerto Rico .

In the mid 1990s, the investment industry lobbied the Legislature to the local investment funds investing 67% of its assets in Puerto Rico . It also authorized them to take borrow up to 50 % of assets held in books . Profits from these investments are free from tax in Puerto Rico .

However, White said that one thing is the concentration of mutual fund assets in Puerto Rico and another form and the representations made to customers to buy such securities.

Asked by this newspaper, but without offering any detail, White agreed that the office continues to investigate the situation addressed in the context of compliance with the Securities Act of Puerto Rico .

White explained that in previous cases, FICO has sought compensation on behalf of investors, but said the investigation of the FICO is not yet at that stage.

So, insisted that each investor will have to prove their case before the Association for Financial Industry Regulatory ( FINRA , in English ) .

What did accept Blanco, at the insistence of this newspaper, is that the problem of excessive concentration of investors in securities of Puerto Rico was the subject of signs in different examinations by Finra to brokerage houses on the Island

“But every case is different and has to prove his case . Many of those affected have lost their life savings and that can not be replaced tomorrow. Many entries are people age and their economies have become salt and water, “he agreed.

RAIN OF COMPLAINTS . ” This has not stopped ,” he said on his part the securities lawyer , Harold Vicente.

According to Vicente, since last summer , the number of persons claiming to be injured by falling bonds and mutual funds and reaching your signature for legal advice has not stopped .

According to Vincent , to date , have been filed over a hundred lawsuits against Finra . He said the number could reach 500 claims this year.

Most, according to Vincent , are linked to UBS.

The same is indicated to this newspaper ‘s lawyer Marie Elsie Lopez Adames and attorney Jacob Zamansky .

OTHER THAN UBS. According Zamansky , at present , has filed ” a handful ” of complaints from served by Santander Securities, Popular Securities and Merrill Lynch customers, but stressed that the bulk of complaints are against UBS brokers .

In essence , the three lawyers are convinced that the situation experienced by investors in the island does not correspond to particular actions of brokers.

“It’s money that can not be replaced ,” said Zamansky adding that those affected were sold a product that did not correspond conservative investment risk profile of the people .

“This is Ponce, Earnest , Hato Rey, Mayaguez. Some people affected throughout the island ,” he said Vicente.