What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: June 6, 2020

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous financial advisors selling municipal bonds and municipal bond funds

One of the most prominent trouble spots for investors have been mutual funds and single bonds issued by Puerto Rico, which was slammed by a long-standing debt crisis in recent years in addition to a devastating hurricane and breakdown of its infrastructure.  The island’s government, which issued the bonds, filed for bankruptcy, which triggered a negotiation with bondholders to negotiate its outstanding debt. That meant that bondholders will receive pennies on the dollar. A deal reached earlier this year slashed $8 billion in debts by 40%, according to Bloomberg News.

To date, the Puerto Rican collapse is the largest governmental bankruptcy in U.S. history, involving $129 billion in debts, reports The New York Times. The crisis was first noticed in 2012, when Moody’s downgraded the island’s bonds to near-junk status, which sunk prices of those debt securities. Since the bonds carried constitutional guarantees, investors were led to believe that they were secure. The bankruptcy was triggered since the island’s government was unable to pay back its debts. Investors, who were not fully informed of the fiscal debacle early on, got burned.

Municipal bonds are debt securities usually issued by government entities to raise money for a wide range of projects from schools to airport expansions. Many “general obligation” bonds have interest payments, or coupons, that are not taxed while others are taxable. They are generally seen as safe since their payments are based on predictable tax revenues. Like other bonds, their coupon yields are based on the amount of risk an investor takes in purchasing them: The higher the risk, the lower the bond’s credit rating – and the higher the interest payment. You’re usually compensated for taking on more risk, but bond prices can still plummet, which was the case in Puerto Rico.

Thousands of investors lost money in funds that invested in Puerto Rican bonds after the bankruptcy. Some lost up to 80%of their retirement nest egg. Bond fund managers did not fully disclose the high-risk nature of the bonds: A CNBC investigation, for example, found that the securities firm UBS “was not forthcoming about the extent of the risks of those bond funds from both its clients and brokers, even as the values of the funds plummeted.”

Since 2014, authorities have been flooded with complaints regarding bonds connected with Puerto Rico. The securities regulator FINRA said it has received more than 2,000 investor inquiries. The problem was so pronounced that FINRA recruited more than 1,000 arbitrators to hear cases against bond brokers on the Caribbean island. Thousands of investors not only bought single bonds but invested in mutual funds that invested in them.

The U.S. Securities and Exchange Commission (SEC) has probed the role of major bond brokers and underwriters. The SEC has investigated major Wall Street firms like Barclays, Morgan Stanley and UBS, which underwrote some billions of the island’s bonds just before declared bankruptcy in 2017.

Among many cases involving arbitration over Puerto Rican bond losses, FINRA awarded one client $19 million (in 2018), finding that UBS broker Luis Moyett exhibited “misconduct.” All told,  UBS has faced claims with aggregate damages of more than $2.6 billion. The firm said it has resolved more than half through settlements, arbitration or withdrawal of the claims, although it wouldn’t say how much it had paid out to investors. UBS has also reached settlements with SEC and FINRA totaling more than $33 million.

Stoltmann Law Offices has represented investors in claims involving municipal bonds and municipal bond funds. If you invested with a broker and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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