The watchdog said that the executives deceived its investors by providing misleading statements regarding liquidity crisis and concealed information that it internally controlled the secondary market for 23 proprietary closed-end mutual funds.
According to the SEC’s order instituting settled administrative proceedings against UBS Puerto Rico, the firm had increased its inventory holdings in the closed-end funds and later withdrew its market price and liquidity support in order to sell 75% of its closed-end fund inventory to unsuspecting investors.
The SEC’s Division of Enforcement Director Robert Khuzami said, "UBS Puerto Rico denied its closed-end fund customers what they were entitled to under the law – accurate price and liquidity information, and a trading desk that did not advantage UBS’s trades over those of its customers."
Ferrer and Ortiz failed to disclose numerous material facts about the closed-end funds allowing UBS Puerto Rico to promote a false picture of a liquid, stable market.
UBS Puerto Rico agreed to settle the SEC’s charges by paying $11.5m in disgorgement, $1.1m in prejudgment interest, and a penalty of $14m.
The SEC has also ordered UBS Puerto Rico to refrain from committing or causing any further violations of the provisions charged, and to comply with its undertaking to retain an independent consultant at its own expense.
The independent consultant will review the adequacy of UBS Puerto Rico’s closed-end fund disclosures and trading and pricing policies, procedures, and practices.
